UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2008
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number 1-6368
Ford Motor Credit Company LLC
(Exact name of registrant as specified in its charter)
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Delaware
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38-1612444
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(State of organization)
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(I.R.S. employer identification no.)
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One American Road, Dearborn, Michigan
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48126
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(Address of principal executive offices)
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(Zip code)
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Registrants telephone number, including area code: (313) 322-3000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
o
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Accelerated filer
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Non-accelerated filer
þ
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
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Yes
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No
All of the limited liability company interests in the registrant (Shares) are held by an
affiliate of the registrant. None of the Shares are publicly traded.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H (1)(a) and (b) of Form
10-Q and is therefore filing this Form with the reduced disclosure format.
EXHIBIT INDEX APPEARS AT PAGE 45
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the Periods Ended June 30, 2008 and 2007
(in millions)
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Second Quarter
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First Half
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2008
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2007
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2008
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2007
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(Unaudited)
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(Unaudited)
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Financing revenue
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Operating leases
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$
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1,695
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$
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1,554
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$
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3,402
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$
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3,049
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Retail
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779
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837
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1,638
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1,696
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Interest supplements and other support costs earned
from affiliated companies
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1,247
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1,125
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2,493
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2,192
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Wholesale
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438
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552
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915
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1,092
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Other
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36
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43
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71
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90
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Total financing revenue
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4,195
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4,111
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8,519
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8,119
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Depreciation on vehicles subject to operating leases
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(4,090
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)
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(1,450
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)
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(5,904
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)
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(2,925
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)
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Interest expense
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(1,901
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(2,166
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)
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(3,893
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(4,315
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)
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Net financing margin
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(1,796
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495
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(1,278
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879
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Other revenue
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Investment and other income related to sales
of receivables
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48
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102
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117
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211
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Insurance premiums earned, net
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42
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43
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82
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87
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Other income, net
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303
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42
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421
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418
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Total financing margin and other revenue
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(1,403
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)
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682
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(658
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1,595
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Expenses
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Operating expenses
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379
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450
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746
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1,006
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Provision for credit losses (Note 4)
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545
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82
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872
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128
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Insurance expenses
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53
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38
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72
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55
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Total expenses
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977
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570
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1,690
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1,189
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Income/(Loss) before income taxes
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(2,380
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112
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(2,348
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406
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Provision for/(Benefit from) income taxes
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(945
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50
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(936
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151
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Income/(Loss) before minority interests
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(1,435
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62
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(1,412
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255
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Minority interests in net income of subsidiaries
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0
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0
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0
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0
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Income/(Loss) from continuing operations
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(1,435
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62
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(1,412
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255
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Gain on disposal of discontinued operations
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8
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9
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Net income/(loss)
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$
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(1,427
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$
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62
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$
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(1,403
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$
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255
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The accompanying notes are an integral part of the financial statements.
1
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
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June 30,
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December 31,
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2008
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2007
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(Unaudited)
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ASSETS
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Cash and cash equivalents (Note 1)
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$
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12,673
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$
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14,137
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Marketable securities
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7,425
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3,155
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Finance receivables, net (Note 2)
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109,088
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111,468
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Net investment in operating leases (Note 3)
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26,553
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29,663
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Retained interest in securitized assets
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380
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653
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Notes and accounts receivable from affiliated companies
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875
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906
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Derivative financial instruments (Note 9)
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2,148
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2,811
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Other assets
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5,259
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6,230
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Total assets
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$
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164,401
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$
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169,023
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LIABILITIES AND SHAREHOLDERS INTEREST
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Liabilities
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Accounts payable
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Customer deposits, dealer reserves and other
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$
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1,866
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$
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1,837
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Affiliated companies
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1,919
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2,308
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Total accounts payable
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3,785
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4,145
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Debt (Note 6)
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137,519
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139,411
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Deferred income taxes
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3,685
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5,380
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Derivative financial instruments (Note 9)
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1,297
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1,376
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Other liabilities and deferred income
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5,810
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5,314
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Total liabilities
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152,096
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155,626
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Minority interests in net assets of subsidiaries
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0
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3
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Shareholders interest
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Shareholders interest
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5,149
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5,149
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Accumulated other comprehensive income
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2,038
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1,730
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Retained earnings (Note 7)
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5,118
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6,515
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Total shareholders interest
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12,305
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13,394
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Total liabilities and shareholders interest
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$
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164,401
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$
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169,023
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The accompanying notes are an integral part of the financial statements.
2
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Periods Ended June 30, 2008 and 2007
(in millions)
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First Half
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2008
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2007
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(Unaudited)
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Cash flows from operating activities
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Net income/(loss)
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$
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(1,403
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)
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$
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255
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Income related to discontinued operations
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(9
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)
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Adjustments to reconcile net income to net cash provided by operations
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Provision for credit losses
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872
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128
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Depreciation and amortization
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5,713
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3,296
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Net gain on sales of finance receivables
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(5
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)
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Net change in deferred income taxes
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(1,673
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)
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(538
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)
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Net change in other assets
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2,088
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511
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Net change in other liabilities
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576
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(321
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)
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All other operating activities
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293
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605
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Net cash provided by operating activities
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6,457
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3,931
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Cash flows from investing activities
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Purchases of finance receivables (other than wholesale)
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(17,920
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)
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(17,786
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)
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Collections of finance receivables (other than wholesale)
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17,835
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16,237
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Purchases of operating lease vehicles
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(7,403
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)
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(8,408
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)
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Liquidations of operating lease vehicles
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4,205
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4,058
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Net change in wholesale receivables
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(1,080
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)
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(752
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)
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Net change in retained interest in securitized assets
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144
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199
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Net change in notes receivable from affiliated companies
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(5
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)
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(100
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)
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Proceeds from sales of receivables and retained interests
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697
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Purchases of marketable securities
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(9,331
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)
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(3,797
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Proceeds from sales and maturities of marketable securities
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5,040
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11,171
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Proceeds from sales of businesses
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3,684
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Net change in derivatives not designated as hedging instruments
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741
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538
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All other investing activities
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73
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33
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Net cash (used in)/provided by investing activities
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(4,017
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)
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2,090
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Cash flows from financing activities
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Proceeds from issuances of long-term debt
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20,544
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16,838
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Principal payments on long-term debt
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(23,127
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)
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(19,280
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)
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Change in short-term debt, net
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(1,419
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)
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(1,415
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)
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All other financing activities
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(91
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)
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|
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(51
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)
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Net cash used in financing activities
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(4,093
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)
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|
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(3,908
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)
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Effect of exchange rate changes on cash and cash equivalents
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|
174
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|
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|
2
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|
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|
|
|
|
|
|
|
|
|
|
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Total cash flows from continuing operations
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(1,479
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)
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|
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2,115
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|
|
|
|
|
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Cash flows from discontinued operations
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|
|
|
|
|
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Cash flows from discontinued operations provided by operating activities
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|
15
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|
|
|
|
|
|
|
|
|
|
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Total cash flows from discontinued operations
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|
15
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|
|
|
|
|
|
|
|
|
|
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Net (decrease)/increase in cash and cash equivalents
|
|
$
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(1,464
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)
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|
$
|
2,115
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash and cash equivalents, beginning of period
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$
|
14,137
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|
|
$
|
12,331
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|
Change in cash and cash equivalents
|
|
|
(1,464
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)
|
|
|
2,115
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|
|
|
|
|
|
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Cash and cash equivalents, end of period
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$
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12,673
|
|
|
$
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14,446
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|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
3
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements have been prepared in conformity with generally accepted
accounting principles in the United States of America (GAAP) for interim financial information,
and instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. In the
opinion of management, these unaudited financial statements include all adjustments considered
necessary for a fair statement of the results of operations and financial conditions for interim
periods for Ford Motor Credit Company LLC, its consolidated subsidiaries and consolidated variable
interest entities (VIEs) in which Ford Motor Credit Company LLC is the primary beneficiary
(collectively referred to herein as Ford Credit, we, our or us). Results for interim
periods should not be considered indicative of results for any other interim period or for the full
year. Reference should be made to the financial statements contained in our Annual Report on Form
10-K for the year ended December 31, 2007 (2007 10-K Report). We are an indirect, wholly owned
subsidiary of Ford Motor Company (Ford).
For the first quarter of 2008, we classified PRIMUS Financial Services Inc. and Primus Finance
and Leasing, Inc. as discontinued operations. During the second quarter of 2008, we reclassified
these entities as continuing operations, including amounts previously reported in our first quarter
2008 financial statements and related footnotes. These reclassifications were not material to our
financial statements and related footnotes. Refer to Note 10 for information about these
divestitures.
Finance Receivables and Net Investment in Operating Leases
As of January 1, 2008, to reduce ongoing obligations to us and to be consistent with general
industry practice, Ford began paying interest supplements and residual value support to us at the
time we purchase or originate eligible contracts from dealers. Finance receivables are reported at
their outstanding balance, including origination cost and late charges, net of unearned income and
unearned interest supplements received from Ford and other affiliates. At June 30, 2008, the
amount of these unearned interest supplements was $1.0 billion. Net investment in operating leases
are recorded at cost and the vehicles are depreciated on a straight-line basis over the lease term
to the estimated residual value. Unearned interest supplements and residual support payments
received from Ford and other affiliates for investments in operating leases are recorded in
Other
liabilities and deferred income.
At June 30, 2008, the amount of these unearned interest
supplements and residual support payments was $1.1 billion.
At June 30, 2008, in the United States and Canada, Ford is obligated to pay us $3.7 billion of
interest supplements (including supplements related to sold receivables) and about $600 million of
residual value support over the terms of the related finance contracts, compared with $5.4 billion
of interest supplements and about $900 million of residual value support at December 31, 2007, in
each case for contracts purchased or originated prior to January 1, 2008. The interest supplements
and residual value support obligations on these contracts will continue to decline as the contracts
liquidate.
Cash and Cash Equivalents and Marketable Securities
The cash balances to be used only to support on-balance sheet securitizations were
$5.4 billion and $4.7 billion at June 30, 2008 and December 31, 2007, respectively. These balances
are generally held by VIEs of which we are the primary beneficiary and are included in
Cash and
cash equivalents
.
We recognized earnings of $94 million and $230 million in the second quarter of 2008 and 2007,
respectively, and $236 million and $517 million in the first half of 2008 and 2007, respectively,
related to interest and investment income on our cash and cash equivalents and marketable
securities. These amounts are included in
Other income, net
.
4
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 1. ACCOUNTING POLICIES (Continued)
Asset Impairments
Held-for-Sale and Discontinued Operations
. We perform an impairment test on an asset group to
be discontinued, held-for-sale, or otherwise disposed of when management has committed to the
action and the action is expected to be completed within one year. We estimate fair value to
approximate the expected proceeds to be received, less transaction costs, and compare it to the
carrying value of the asset group. An impairment charge is recognized when the carrying value
exceeds the estimated fair value.
Held-and-Used Long-Lived Assets.
We evaluate the carrying value of held-and-used long-lived
asset groups for potential impairment when certain triggering events have occurred. When a
triggering event occurs, a test for recoverability is performed, comparing projected undiscounted
future cash flows to the carrying value of the asset group. If the test for recoverability
identifies a possible impairment, the asset groups fair value is measured in accordance with the
fair value measurement framework. An impairment charge is recognized for the amount by which the
carrying value of the asset group exceeds its estimated fair value.
Provision for/(Benefit from) Income Taxes
The provision for/(benefit from) income taxes is computed by applying our estimated annual
effective tax rate to year-to-date income/(loss) before taxes.
NOTE 2. FINANCE RECEIVABLES
Net finance receivables at June 30, 2008 and December 31, 2007 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
Retail
|
|
$
|
72,092
|
|
|
$
|
74,203
|
|
Wholesale
|
|
|
35,927
|
|
|
|
34,808
|
|
Other
|
|
|
3,352
|
|
|
|
3,394
|
|
|
|
|
|
|
|
|
Total finance receivables, net of
unearned income (a)(b)
|
|
|
111,371
|
|
|
|
112,405
|
|
Less: Unearned interest supplements
|
|
|
(1,017
|
)
|
|
|
|
|
Less: Allowance for credit losses
|
|
|
(1,266
|
)
|
|
|
(937
|
)
|
|
|
|
|
|
|
|
Finance receivables, net
|
|
$
|
109,088
|
|
|
$
|
111,468
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
At June 30, 2008 and December 31, 2007, includes $1.6 billion and $1.8
billion, respectively, of primarily wholesale receivables with entities that
are reported as consolidated subsidiaries of Ford. The consolidated
subsidiaries include dealerships that are partially owned by Ford and
consolidated as VIEs and also certain overseas affiliates. The associated
vehicles that are being financed by us are reported as inventory on Fords
balance sheet.
|
|
(b)
|
|
At June 30, 2008 and December 31, 2007, includes finance receivables of
$77.4 billion and $67.2 billion, respectively, that have been sold for legal
purposes in securitizations that do not satisfy the requirements for accounting
sale treatment. These receivables are available only for payment of the debt
or other obligations issued or arising in the securitization transactions; they
are not available to pay our other obligations or the claims of our other
creditors until the associated debt or other obligations are satisfied.
|
5
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 3. NET INVESTMENT IN OPERATING LEASES
During the second quarter of 2008, higher fuel prices and the weak economic climate in North
America resulted in a pronounced shift in consumer preferences from full-size trucks and
traditional sport utility vehicles to smaller, more fuel-efficient vehicles. This shift in
consumer preferences combined with a weak economic climate caused a significant reduction in
auction values and in particular for used full-size trucks and traditional sport utility vehicles.
At the end of the quarter, we completed our quarterly North America operating lease portfolio
adequacy study for accumulated depreciation and projected that lease-end residual values would be
significantly lower than previously expected for full-size trucks and traditional sport utility
vehicles.
As a result of the market factors and our adequacy study results, we tested the operating
leases of our North America Segment for recoverability and recorded a pre-tax impairment charge of
$2.1 billion in
Depreciation on vehicles subject to operating leases
representing the amount by
which the carrying value of certain vehicle lines in our lease portfolio exceeded the fair value.
To reduce the $11.5 billion carrying value of the impaired assets to fair value of $9.4 billion,
vehicle cost referenced in the table below was reduced by the $2.1 billion impairment charge and
$4.4 billion was reclassified from accumulated depreciation. We continue to depreciate all
vehicles subject to operating leases in accordance with our accounting policy. Refer to Note 1 in
our 2007 10-K Report for more information on our depreciation accounting policy.
Net investment in operating leases at June 30, 2008 and December 31, 2007 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
Vehicles, at cost, including initial direct costs (a)
|
|
$
|
30,922
|
|
|
$
|
38,000
|
|
Less: Accumulated depreciation (a)
|
|
|
(4,142
|
)
|
|
|
(8,184
|
)
|
Less: Allowance for credit losses
|
|
|
(227
|
)
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
Net investment in operating leases (b)
|
|
$
|
26,553
|
|
|
$
|
29,663
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Adjusted for accumulated depreciation on impaired assets that has been reclassified to
vehicles, at cost.
|
|
(b)
|
|
At June 30, 2008 and December 31, 2007, includes net investment in operating leases of
$15.2 billion and $18.9 billion, respectively, that have been included in securitizations that
do not satisfy the requirements for accounting sale treatment. These net investment in
operating leases are available only for payment of the debt or other obligations issued or
arising in the securitization transactions; they are not available to pay our other
obligations or the claims of our other creditors until the associated debt or other
obligations are satisfied.
|
6
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 4. ALLOWANCE FOR CREDIT LOSSES
Following is an analysis of the allowance for credit losses related to finance receivables and
net investment in operating leases for the periods ended June 30 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
First Half
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Balance, beginning of period
|
|
$
|
1,203
|
|
|
$
|
1,044
|
|
|
$
|
1,090
|
|
|
$
|
1,110
|
|
Provision for credit losses
|
|
|
545
|
|
|
|
82
|
|
|
|
872
|
|
|
|
128
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs before recoveries
|
|
|
354
|
|
|
|
246
|
|
|
|
692
|
|
|
|
473
|
|
Recoveries
|
|
|
(108
|
)
|
|
|
(121
|
)
|
|
|
(217
|
)
|
|
|
(241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
246
|
|
|
|
125
|
|
|
|
475
|
|
|
|
232
|
|
Other changes, principally amounts related to
translation adjustments and finance receivables sold
|
|
|
9
|
|
|
|
(9
|
)
|
|
|
(6
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deductions
|
|
|
255
|
|
|
|
116
|
|
|
|
469
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
1,493
|
|
|
$
|
1,010
|
|
|
$
|
1,493
|
|
|
$
|
1,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the second quarter of 2008, we updated our assumptions to reflect higher severities, which
increased our allowance for credit losses by about $190 million at June 30, 2008.
NOTE 5. VARIABLE INTEREST ENTITIES
We consolidate VIEs in which we are the primary beneficiary. We use special purpose entities
(SPEs) that are considered VIEs for most of our on-balance sheet securitizations. The
liabilities recognized as a result of consolidating these VIEs do not represent additional claims
on our general assets; rather, they represent claims against the specific securitized assets.
Conversely, these specific securitized assets do not represent additional assets that could be used
to satisfy claims against our general assets. Consolidated assets related to these securitizations
of $91.1 billion and $82.4 billion are included in our balance sheet at June 30, 2008 and
December 31, 2007, respectively. These consolidated assets include $5.3 billion and $4.6 billion
of cash and cash equivalents and $85.8 billion and $77.8 billion of finance receivables and
beneficial interests in net investment in operating leases at June 30, 2008 and December 31, 2007,
respectively.
We have investments in other entities deemed to be VIEs of which we are not the primary
beneficiary. The risks and rewards associated with our interests in these entities are based
primarily on ownership percentages. Therefore, we do not consolidate these entities and we account
for them as equity method investments. Our maximum exposure ($150 million and $76 million at
June 30, 2008 and December 31, 2007, respectively) to any potential losses associated with these
VIEs is limited to our equity investments and, where applicable, receivables due from the VIEs.
In addition, we sell finance receivables to bank-sponsored asset-backed commercial paper
issuers that are SPEs of the sponsor bank; these SPEs are not consolidated by us. All of these
sales constitute sales for legal purposes, but some of the sales do not satisfy the requirements
for accounting sale treatment. The outstanding balance of these finance receivables was
approximately $2.6 billion and $3.4 billion at June 30, 2008 and December 31, 2007, respectively.
7
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 6. DEBT
At June 30, 2008 and December 31, 2007, debt was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rates
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Contractual (a)
|
|
|
Average (b)
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed commercial paper (c)
|
|
|
3.2
|
%
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
$
|
14,213
|
|
|
$
|
13,518
|
|
Other asset-backed short-term debt (c)
|
|
|
5.3
|
%
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
4,843
|
|
|
|
6,196
|
|
Ford Interest Advantage (d)
|
|
|
3.7
|
%
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
4,855
|
|
|
|
5,408
|
|
Unsecured commercial paper
|
|
|
8.4
|
%
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
460
|
|
|
|
526
|
|
Other short-term debt (e)
|
|
|
6.7
|
%
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
1,889
|
|
|
|
1,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt
|
|
|
4.0
|
%
|
|
|
5.5
|
%
|
|
|
4.2
|
%
|
|
|
5.7
|
%
|
|
|
26,260
|
|
|
|
27,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior indebtedness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,101
|
|
|
|
12,600
|
|
Notes payable after one year (f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,572
|
|
|
|
50,296
|
|
Unamortized discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81
|
)
|
|
|
(86
|
)
|
Asset-backed debt (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,226
|
|
|
|
20,121
|
|
Notes payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,441
|
|
|
|
29,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt (g)
|
|
|
5.8
|
%
|
|
|
6.5
|
%
|
|
|
5.6
|
%
|
|
|
6.3
|
%
|
|
|
111,259
|
|
|
|
112,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
5.5
|
%
|
|
|
6.3
|
%
|
|
|
5.4
|
%
|
|
|
6.2
|
%
|
|
$
|
137,519
|
|
|
$
|
139,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Second quarter 2008 and fourth quarter 2007 average contractual rates exclude the effects of derivatives and facility fees.
|
|
(b)
|
|
Second quarter 2008 and fourth quarter 2007 weighted-average rates include the effects of derivatives and facility fees.
|
|
(c)
|
|
Obligations issued in securitizations that are payable only out of collections on the underlying securitized assets and related enhancements.
|
|
(d)
|
|
The Ford Interest Advantage program consists of our floating rate demand notes.
|
|
(e)
|
|
Includes $64 million and $58 million with affiliated companies at June 30, 2008 and December 31, 2007, respectively.
|
|
(f)
|
|
Includes $557 million and $158 million with affiliated companies at June 30, 2008 and December 31, 2007, respectively.
|
|
(g)
|
|
Average contractual and weighted-average interest rates for total long-term debt reflects the rates for both notes payable within one year and notes payable after one year.
|
8
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 7. RETAINED EARNINGS AND COMPREHENSIVE INCOME
Retained Earnings
The following table summarizes earnings retained for use in the business for the periods ended
June 30 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
First Half
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Retained earnings, beginning balance
|
|
$
|
6,545
|
|
|
$
|
5,933
|
|
|
$
|
6,515
|
|
|
$
|
5,791
|
|
Adjustment for adoption of
SFAS No. 159 (a)
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Adjustment for adoption of FIN 48 (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
Net income
|
|
|
(1,427
|
)
|
|
|
62
|
|
|
|
(1,403
|
)
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings, ending balance
|
|
$
|
5,118
|
|
|
$
|
5,995
|
|
|
$
|
5,118
|
|
|
$
|
5,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
See Note 8 for additional information on Statement of Financial Accounting Standards No. 159,
The Fair
Value Option for Financial Assets and Financial Liabilities
including an amendment of FASB Statement No.
115
(SFAS No. 159).
|
|
(b)
|
|
Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
an interpretation of FASB Statement No. 109, Accounting for Income Taxes
(FIN 48).
|
Comprehensive Income
The following table summarizes comprehensive income for the periods ended June 30 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
First Half
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Net income/(loss)
|
|
$
|
(1,427
|
)
|
|
$
|
62
|
|
|
$
|
(1,403
|
)
|
|
$
|
255
|
|
Other comprehensive income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
46
|
|
|
|
384
|
|
|
|
334
|
|
|
|
449
|
|
Change in value of retained interest in
securitized assets
|
|
|
(6
|
)
|
|
|
12
|
|
|
|
(20
|
)
|
|
|
(2
|
)
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(7
|
)
|
Less: Reclassification adjustment for
(gains)/losses on marketable securities
realized in net income
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(22
|
)
|
Net loss on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Less: Reclassification adjustment for
gains on derivative instruments
realized in net income
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Adjustment for adoption of SFAS No. 159
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
40
|
|
|
|
388
|
|
|
|
308
|
|
|
|
410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
(1,387
|
)
|
|
$
|
450
|
|
|
$
|
(1,095
|
)
|
|
$
|
665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 8. FAIR VALUE MEASUREMENTS
We adopted Statement of Financial Accounting Standards No. 157,
Fair Value Measurements
(SFAS No. 157), on January 1, 2008. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 defines
fair value as the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. The fair value should
be based on assumptions that market participants would use including a consideration of
non-performance risk.
In determining fair value, we use various valuation techniques and, as required by
SFAS No. 157, prioritize the use of observable inputs. The availability of observable inputs
varies from instrument to instrument and depends on a variety of factors including the type of
instrument, whether the instrument is actively traded and other characteristics particular to the
transaction. For many financial instruments, pricing inputs are readily observable in the market,
the valuation methodology used is widely accepted by market participants and the valuation does not
require significant management discretion. For other financial instruments, pricing inputs are
less observable in the marketplace and may require management judgment.
We assess the inputs used to measure fair value using a three-tier hierarchy based on the
extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs
include quoted prices for identical instruments and are the most observable. Level 2 inputs
include quoted prices for similar assets and observable inputs such as interest rates, currency
exchange rates and yield curves. Level 3 inputs are not observable in the market and include
managements judgments about the assumptions market participants would use in pricing the asset or
liability. The use of observable and unobservable inputs is reflected in our hierarchy assessment
disclosed in the tables below.
Our fair value processes include controls that are designed to ensure that fair values are
appropriate. Such controls include model validation, review of key model inputs, analysis of
period-over-period fluctuations and reviews by senior management.
The following section describes the valuation methodologies used to measure fair value, key
inputs and significant assumptions.
Cash Equivalents Financial Instruments.
We classify highly liquid investments, with a
maturity of 90 days or less at the date of purchase, including U.S. Treasury bills, federal agency
securities and A-1/P-1 (or higher) rated commercial paper as cash equivalents. Prior to the
adoption of SFAS No. 157, we carried cash equivalents at amortized cost, which approximates fair
value. Effective January 1, 2008, we measure financial instruments classified as cash equivalents
at fair value. We use quoted prices where available to determine fair value for U.S. Treasury
notes and industry-standard valuation models using market-based inputs when quoted prices are
unavailable, such as for government agency securities and corporate obligations.
Marketable Securities
. Our marketable securities portfolios include investments in U.S.
government and non-U.S. government securities, corporate obligations and equities and asset-backed
securities with a maturity of greater than 90 days at the date of purchase. Where available,
including for U.S. Treasury notes and equities, we use quoted market prices to measure fair value.
If quoted market prices are not available, such as for government agency securities, asset-backed
securities and corporate obligations, prices for similar assets and matrix pricing models are used.
In certain cases, where there is limited transparency to valuation inputs, we contact securities
dealers and obtain dealer quotes.
10
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 8. FAIR VALUE MEASUREMENTS (Continued)
Concurrent with our adoption of SFAS No. 157, we elected to apply the fair value option under
SFAS No. 159 to our marketable securities. SFAS No. 159 permits entities to measure certain
financial assets and liabilities at fair value. The fair value option may be elected on an
instrument-by-instrument basis and is irrevocable. Unrealized gains and losses on items for which
the fair value option has been elected are recognized in earnings at each subsequent reporting
date. This election resulted in a cumulative after-tax increase of approximately $6 million to the
opening balance of
Retained earnings
. Prior to the election of SFAS No, 159, we classified our
marketable securities as available-for-sale or held-to-maturity. The unrealized gains and losses
for available-for-sale securities were recorded in
Accumulated other comprehensive income
and the
unrealized gains and losses for held-to-maturity securities were not recognized.
Derivative Financial Instruments
. As part of our risk management strategy we enter into
derivative transactions to mitigate exposures. Our derivative instruments include interest rate
swaps, currency swaps and currency forwards. Our derivatives are not exchange-traded and are
over-the-counter customized derivative transactions. Substantially all of our derivative exposures
are with counterparties that have long-term credit ratings of single-A or better.
We estimate the fair value of our derivatives using industry standard valuation models. These
models project future cash flows and discount the future amounts to a present value using
market-based expectations for interest rates, foreign exchange rates and the contractual terms of
the derivative instruments.
We include an adjustment for non-performance risk in the recognized measure of fair value of
derivative instruments. The adjustment reflects the full credit default spread (CDS) applied to
a net exposure by counterparty. We use our counterpartys CDS when we are in a net asset position
and our own CDS when we are in a net liability position. At June 30, 2008, our derivative assets
were reduced by $31 million and our derivative liabilities were reduced by $80 million. These
adjustments resulted in increased pre-tax earnings of $49 million recorded to
Other income, net
.
At March 31, 2008, we measured the fair value of our derivative assets and liabilities by
discounting the cash flows using LIBOR, but without a quantitative adjustment for non-performance
risk beyond that which is implied by LIBOR. The $49 million second quarter adjustment included a
$41 million cumulative adjustment to correct the March 31, 2008 derivative valuation to reflect
non-performance risk. The impact on our previously-issued first quarter 2008 financial statements
was not material and there is no impact to previous annual periods.
In certain cases, market data is not available and we use management judgment to develop
assumptions which are used to determine fair value. This includes situations where there is
illiquidity for a particular currency or for longer-dated instruments. For longer-dated
instruments in which observable interest rates or foreign exchange rates are not available for all
periods through maturity, we hold the last available data point constant through maturity.
11
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 8. FAIR VALUE MEASUREMENTS (Continued)
Retained Interest in Securitized Assets.
We retain certain interests in receivables sold in
off-balance sheet securitization transactions including residual interest in securitizations and
restricted cash. We estimate the fair value of retained interests using internal valuation models,
market inputs and our own assumptions. The three key inputs that affect the valuation of the
residual interest cash flows include credit losses, prepayment speed and the discount rate. The
fair value of residual interest is estimated based on the present value of monthly collections on
the sold finance receivables in excess of amounts needed for payment of the debt and other
obligations issued or arising in the securitization transactions. The fair value of the residual
interest in securitizations and the cash reserve account is determined using a discounted cash flow
analysis.
The following table summarizes the fair values of financial instruments measured at fair value
on a recurring basis at June 30, 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items Measured at Fair Value on a Recurring Basis
|
|
|
|
Quoted Price in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Balance as of
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
June 30,
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents financial
instruments (a)(b)
|
|
$
|
|
|
|
$
|
2,367
|
|
|
$
|
|
|
|
$
|
2,367
|
|
Marketable securities (a)
|
|
|
809
|
|
|
|
6,616
|
|
|
|
|
|
|
|
7,425
|
|
Derivative financial instruments
|
|
|
|
|
|
|
1,691
|
|
|
|
457
|
|
|
|
2,148
|
|
Retained interest in securitized
assets
|
|
|
|
|
|
|
|
|
|
|
380
|
|
|
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
809
|
|
|
$
|
10,674
|
|
|
$
|
837
|
|
|
$
|
12,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
|
|
|
$
|
842
|
|
|
$
|
455
|
|
|
$
|
1,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
842
|
|
|
$
|
455
|
|
|
$
|
1,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Approximately 97% of Cash equivalents financial instruments and Marketable securities presented are U.S.
Treasuries, federal agency securities and A-1/P-1 unsecured commercial paper. Instruments presented in Level 1
include U.S. Treasuries and equities. Instruments presented in Level 2 include federal agency securities,
corporate obligations and asset-backed securities.
|
|
(b)
|
|
Cash equivalents financial instruments excludes time deposits, certificates of deposit, money market
accounts and other cash which are reported at par value.
|
12
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 8. FAIR VALUE MEASUREMENTS (Continued)
The following table summarizes the changes in Level 3 financial instruments measured at fair
value on a recurring basis for the period ended June 30, 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value at
|
|
|
Total Realized
|
|
|
|
|
|
|
Net Transfers
|
|
|
Fair Value at
|
|
|
Gains/(Losses)
|
|
|
|
January 1,
|
|
|
/Unrealized
|
|
|
Net Purchases/
|
|
|
Into/(Out of)
|
|
|
June 30,
|
|
|
on Instruments
|
|
|
|
2008
|
|
|
Gains/(Losses)
|
|
|
(Settlements)
|
|
|
Level 3
|
|
|
2008
|
|
|
Still Held (a)
|
|
|
|
(Unaudited)
|
|
Derivative financial
instruments, net (b)
|
|
$
|
(30
|
)
|
|
$
|
17
|
|
|
$
|
1
|
|
|
$
|
14
|
|
|
$
|
2
|
|
|
$
|
6
|
|
Retained interest in
securitized assets (c)
|
|
|
653
|
|
|
|
47
|
|
|
|
(320
|
)
|
|
|
|
|
|
|
380
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 3 fair value
|
|
$
|
623
|
|
|
$
|
64
|
|
|
$
|
(319
|
)
|
|
$
|
14
|
|
|
$
|
382
|
|
|
$
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
For those assets and liabilities still held at June 30, 2008.
|
|
(b)
|
|
Reflects fair value of derivative assets, net of liabilities. Realized/Unrealized gains/(losses) on derivative financial instruments for the period
presented are recorded to
Interest expense
($8 million for second quarter 2008 and $7 million for first half 2008) and
Other income, net
($(56) million for
second quarter 2008 and $10 million for first half 2008) on the income statement. Refer to Note 9 for income statement classification by hedge designation.
|
|
(c)
|
|
Realized/Unrealized gains/(losses) on the retained interests in securitized assets for the period presented are recorded in
Investment and other income
related to sales of receivables
on the income statement ($48 million for second quarter 2008 and $63 million for first half 2008) and
Accumulated other
comprehensive income
on the balance sheet ($0 for second quarter 2008 and $(16) million for first half 2008).
|
The following table summarizes the fair values of items measured at fair value on a
nonrecurring basis at June 30, 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items Measured at Fair Value on a Nonrecurring Basis
|
|
|
|
Quoted Price in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Balance as of
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
June 30,
|
|
|
Total
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2008
|
|
|
Gains/(Losses)
|
|
|
|
(Unaudited)
|
|
Net investment in operating
leases (a)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,414
|
|
|
$
|
9,414
|
|
|
$
|
(2,086
|
)
|
|
|
|
(a)
|
|
In accordance with the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS No. 144), we recorded a pre-tax impairment of $2.1 billion related to certain vehicle lines included in our
Net
investment in operating leases.
The fair value used to determine the impairment was measured by discounting the
contractual payments and estimated auction proceeds. The discount rate reflected hypothetical market assumptions
regarding borrowing rates, credit loss patterns and residual value risk. Refer to Note 3 for additional information of
this impairment.
|
13
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to interest rate changes and foreign currency exchange rate fluctuations in the
normal course of business. As part of our risk management strategy we use various derivatives,
including interest rate swaps, currency swaps and currency forward contracts to mitigate our risk
exposure to interest rates and currency exchange rates. We have elected to apply hedge accounting
to certain receive-fixed, pay-float interest rate swaps designated as fair value hedges of
fixed-rate debt. The risk being hedged is the risk of changes in fair value of the hedged item
attributable to changes in the benchmark interest rate. Hedges that receive designated hedge
accounting treatment are documented and evaluated for effectiveness at the time they are designated
as well as throughout the hedge period. We use regression analysis to assess fair value hedge
effectiveness under the long-haul method. Some derivatives do not qualify for hedge accounting;
for others, we elect not to apply hedge accounting. For both of these, the mark to fair value is
reported currently through earnings. Refer to our 2007 10-K Report for a more detailed description
of our derivative financial instruments and hedge accounting designations.
Income Statement Effect of Derivative Financial Instruments
The following table summarizes the estimated pre-tax gain/(loss) for each type of hedge
designation (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
First Half
|
|
|
Income Statement
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Classification
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
$
|
(30
|
)
|
|
$
|
|
|
|
$
|
(43
|
)
|
|
$
|
|
|
|
Other income, net
|
Net interest
settlements and accruals excluded from the assessment of hedge
effectiveness
|
|
|
18
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
Interest expense
|
Derivatives not designated as hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
42
|
|
|
|
(255
|
)
|
|
|
(46
|
)
|
|
|
(222
|
)
|
|
Other income, net
|
Foreign currency swaps and
forward contracts (a)
|
|
|
(306
|
)
|
|
|
(443
|
)
|
|
|
106
|
|
|
|
(450
|
)
|
|
Other income, net
|
Other
|
|
|
(1
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Other income, net
|
|
|
|
(a)
|
|
Gains/(losses) related to foreign currency derivatives were substantially offset by net revaluation impacts on
foreign denominated debt, which were also recorded in
Other income, net.
|
Balance Sheet Effect of Derivative Financial Instruments
We do not net our position by counterparty for purposes of balance sheet presentation and
disclosure. The following table summarizes the estimated fair value of our derivative financial
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
December 31, 2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Fair
|
|
|
|
|
|
|
Fair
|
|
|
Fair
|
|
|
|
|
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
Value
|
|
|
Value
|
|
|
|
Notional
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Notional
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(in billions)
|
|
|
(in millions)
|
|
|
(in billions)
|
|
|
(in millions)
|
|
Fair value hedges
|
|
$
|
5
|
|
|
$
|
140
|
|
|
$
|
25
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Derivatives not designated
as hedging instruments (a)
|
|
|
172
|
|
|
|
2,008
|
|
|
|
1,272
|
|
|
|
181
|
|
|
|
2,811
|
|
|
|
1,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative financial
instruments
|
|
$
|
177
|
|
|
$
|
2,148
|
|
|
$
|
1,297
|
|
|
$
|
181
|
|
|
$
|
2,811
|
|
|
$
|
1,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Includes internal forward contracts between Ford Credit and an affiliated company.
|
14
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 10. DIVESTITURES AND OTHER ACTIONS
International Segment Divestitures
Nordic Operations.
During the second quarter of 2008, we completed the creation of a joint
venture finance company and transferred the majority of our business and assets from Denmark,
Finland, Norway and Sweden into the joint venture. The joint venture will support the sale of Ford
vehicles in these markets. As a result of the sale,
Finance receivables, net
were reduced by
approximately $1.7 billion, and we recognized a pre-tax gain of approximately $85 million, net of
transaction costs and including $35 million of foreign currency translation adjustments, in
Other
income, net
. We report our ownership interest in the joint venture in
Other assets
as an equity
method investment.
PRIMUS Financial Services Inc
. In April 2008, we completed the sale of 96% of our ownership
interest in PRIMUS Financial Services Inc., our operation in Japan that offers automotive retail
and wholesale financing of Ford and Mazda vehicles. As a result of the sale,
Finance receivables,
net
were reduced by approximately $1.8 billion,
Debt
was reduced by approximately $252 million, and
we recognized a pre-tax gain of approximately $22 million, net of transaction costs and including
$28 million of foreign currency translation adjustments, in
Other income, net.
We report our
remaining ownership interest in
Other assets
as a cost method investment.
Primus Finance and Leasing, Inc
. During the second quarter of 2008, we completed the sale of
our 60% ownership interest in Primus Finance and Leasing, Inc. (Primus Philippines), our
operation in the Philippines that offers automotive retail and wholesale financing of Ford and
Mazda vehicles. We also completed the sale of our 40% ownership in PFL Holdings, Inc., a holding
company in the Philippines that owns the remaining 40% ownership interest in Primus Philippines.
As a result of the sale, we recognized a pre-tax gain of approximately $5 million, net of
transaction costs and including $1 million of foreign currency translation adjustments, in
Other
income, net.
North America Segment Divestiture
Triad Financial Corporation.
In 2005, we completed the sale of Triad Financial Corporation
(Triad). Triad specialized in automobile retail installment sales contracts with borrowers who
generally would not be expected to qualify, based on their credit worthiness, for traditional
financing sources such as those provided by commercial banks or automobile manufacturers
affiliated finance companies primarily through non-Ford dealerships. In 2005, we recognized a
$4 million after-tax gain on disposal of discontinued operations. During the second quarter of
2008 and the first half of 2008, we received additional proceeds primarily based on better than
anticipated securitized portfolio performance, pursuant to a contractual agreement entered into at
the closing of the sale, and recognized an additional $8 million after-tax gain and an additional
$9 million after-tax gain on disposal of discontinued operations, respectively.
15
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 10. DIVESTITURES AND OTHER ACTIONS (Continued)
Business Restructuring Germany
In 2006, FCE Bank plc (FCE) announced a plan to restructure its business in Germany that
supports the sales activities of automotive financial services of Ford, Jaguar, Land Rover and
Mazda vehicles. The plan included the consolidation of branches into district offices; these
actions reduced ongoing costs. The costs associated with the business restructuring were charged
to
Operating expense
s. Total estimated charges accrued through June 30, 2008 are $18 million. In
the first half of 2008, we paid $3 million. The restructuring was completed in 2007.
The table below summarizes the pre-tax charges incurred and the related liability for the
periods ended June 30 (in millions):
|
|
|
|
|
|
|
|
|
|
|
First Half
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
Liability at Beginning of Period
|
|
$
|
7
|
|
|
$
|
31
|
|
(Released)/Accrued During Period
|
|
|
0
|
|
|
|
(6
|
)
|
Paid During Period
|
|
|
(3
|
)
|
|
|
0
|
|
Foreign Currency Translation
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
Liability at End of Period
|
|
$
|
5
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
Business Restructuring Spain
In 2007, FCE announced a plan to restructure its business in Spain that supports the sales
activities of automotive financial services of Ford, Jaguar, Land Rover, Mazda and Volvo vehicles.
The plan includes the consolidation of branches; these actions are expected to reduce ongoing
costs. The costs associated with the business restructuring are primarily related to employee
separations and were charged to
Operating expense
s. Total estimated charges accrued through
June 30, 2008 are $3 million. In the first half of 2008, we paid $2 million. The restructuring
will be completed in 2008.
Employee Separation Actions
In 2007, we recognized pre-tax charges of $45 million in
Operating expenses
for employee
separation actions (excluding costs for retirement plan and postretirement health care and life
insurance benefits) announced in 2006 in the United States and in 2007 in non-U.S. locations. In
the second quarter of 2008, we released the remaining $2 million of this reserve and no charges
were incurred for retirement plan and postretirement health care and life insurance benefits
related to these actions. Refer to our 2007 10-K Report for a more detailed description of our
employee separation actions.
Profit Maintenance Agreement
In the first quarter of 2008, we received a payment of $109 million under the terms of the
profit maintenance agreement between Ford and us. The payment was recorded as an increase in
Cash
and cash equivalents
and
Total liabilities
. Based on an evaluation of several factors including
our present liquidity and leverage ratio, and our forecasted and historical levels of liquidity,
leverage, equity, assets, dividends and distributions, and other intercompany obligations, we did
not request a payment in the second quarter 2008. First half 2008
Income/(Loss) before income
taxes
was not impacted by the first or second quarter actions. The profit maintenance agreement
can be found in Exhibit 10A of our Annual Report on Form 10-K for the year ended December 31, 2001.
16
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 11. SEGMENT INFORMATION
We divide our business segments based on geographic regions: the North America Segment
(includes operations in the United States and Canada) and the International Segment (includes
operations in all other countries). We measure the performance of our segments primarily on an
income before income taxes basis, after excluding the impact to earnings from gains and losses
related to market valuation adjustments from derivatives primarily related to movements in interest
rates. These adjustments are included in Unallocated Risk Management and are excluded in assessing
our North America and International segment performance, because our risk management activities are
carried out on a centralized basis at the corporate level, with only certain elements allocated to
these segments. The North America and International segments are presented on a managed basis.
Managed basis includes
Finance receivables, net
and
Net investment in operating leases
reported on
our balance sheet, excluding unearned interest supplements related to finance receivables, and
receivables we sold in off-balance sheet securitizations and continue to service.
Key operating data for our operating segments for the periods ended June 30 were as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated/Eliminations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
Unallocated
|
|
|
Effect of
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
America
|
|
|
International
|
|
|
Risk
|
|
|
Sales of
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Management
|
|
|
Receivables
|
|
|
Supplements
|
|
|
Total
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (a)
|
|
$
|
3,470
|
|
|
$
|
1,143
|
|
|
$
|
12
|
|
|
$
|
(37
|
)
|
|
$
|
|
|
|
$
|
(25
|
)
|
|
$
|
4,588
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes
|
|
|
(2,606
|
)
|
|
|
214
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
(2,380
|
)
|
Provision for /(Benefit from) income
taxes
|
|
|
(1,025
|
)
|
|
|
75
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
(945
|
)
|
Income/(Loss) from continuing
operations
|
|
|
(1,581
|
)
|
|
|
139
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
(1,435
|
)
|
Other disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on vehicles subject to
operating leases
|
|
|
4,020
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,090
|
|
Interest expense
|
|
|
1,298
|
|
|
|
648
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
(45
|
)
|
|
|
1,901
|
|
Provision for credit losses
|
|
|
486
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
545
|
|
|
Second Quarter 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (a)
|
|
$
|
3,756
|
|
|
$
|
958
|
|
|
$
|
(316
|
)
|
|
$
|
(100
|
)
|
|
$
|
|
|
|
$
|
(416
|
)
|
|
$
|
4,298
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes
|
|
|
260
|
|
|
|
168
|
|
|
|
(316
|
)
|
|
|
|
|
|
|
|
|
|
|
(316
|
)
|
|
|
112
|
|
Provision for/(Benefit from) income
taxes
|
|
|
102
|
|
|
|
59
|
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
50
|
|
Income/(Loss) from continuing
operations
|
|
|
158
|
|
|
|
109
|
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
|
(205
|
)
|
|
|
62
|
|
Other disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on vehicles subject to
operating leases
|
|
|
1,373
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,450
|
|
Interest expense
|
|
|
1,709
|
|
|
|
568
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
|
|
|
|
(111
|
)
|
|
|
2,166
|
|
Provision for credit losses
|
|
|
75
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
|
(a)
|
|
Total Revenue represents
Total financing revenue, Investment and other income related to sales of receivables, Insurance premiums earned, net
and
Other
income, net.
|
17
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 11. SEGMENT INFORMATION (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated/Eliminations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
Unallocated
|
|
|
Effect of
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
America
|
|
|
International
|
|
|
Risk
|
|
|
Sales of
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Management
|
|
|
Receivables
|
|
|
Supplements
|
|
|
Total
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (a)
|
|
$
|
7,195
|
|
|
$
|
2,176
|
|
|
$
|
(150
|
)
|
|
$
|
(82
|
)
|
|
$
|
|
|
|
$
|
(232
|
)
|
|
$
|
9,139
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes
|
|
|
(2,568
|
)
|
|
|
370
|
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
(150
|
)
|
|
|
(2,348
|
)
|
Provision for /(Benefit from) income
taxes
|
|
|
(1,013
|
)
|
|
|
130
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
(936
|
)
|
Income/(Loss) from continuing
operations
|
|
|
(1,555
|
)
|
|
|
240
|
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
(97
|
)
|
|
|
(1,412
|
)
|
Other disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on vehicles subject to
operating leases
|
|
|
5,758
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,904
|
|
Interest expense
|
|
|
2,723
|
|
|
|
1,280
|
|
|
|
|
|
|
|
(110
|
)
|
|
|
|
|
|
|
(110
|
)
|
|
|
3,893
|
|
Provision for credit losses
|
|
|
790
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
872
|
|
Finance receivables and net
investment in operating leases
|
|
|
98,883
|
|
|
|
40,805
|
|
|
|
|
|
|
|
(3,030
|
)
|
|
|
(1,017
|
)
|
|
|
(4,047
|
)
|
|
|
135,641
|
|
Total assets
|
|
|
121,016
|
|
|
|
47,053
|
|
|
|
|
|
|
|
(2,651
|
)
|
|
|
(1,017
|
)
|
|
|
(3,668
|
)
|
|
|
164,401
|
|
|
First Half 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (a)
|
|
$
|
7,507
|
|
|
$
|
1,902
|
|
|
$
|
(353
|
)
|
|
$
|
(221
|
)
|
|
$
|
|
|
|
$
|
(574
|
)
|
|
$
|
8,835
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes
|
|
|
432
|
|
|
|
327
|
|
|
|
(353
|
)
|
|
|
|
|
|
|
|
|
|
|
(353
|
)
|
|
|
406
|
|
Provision for/(Benefit from) income
taxes
|
|
|
160
|
|
|
|
115
|
|
|
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
(124
|
)
|
|
|
151
|
|
Income/(Loss) from continuing
operations
|
|
|
272
|
|
|
|
212
|
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
(229
|
)
|
|
|
255
|
|
Other disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on vehicles subject to
operating leases
|
|
|
2,772
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,925
|
|
Interest expense
|
|
|
3,445
|
|
|
|
1,101
|
|
|
|
|
|
|
|
(231
|
)
|
|
|
|
|
|
|
(231
|
)
|
|
|
4,315
|
|
Provision for credit losses
|
|
|
97
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128
|
|
Finance receivables and net
investment in operating leases
|
|
|
108,942
|
|
|
|
40,370
|
|
|
|
2
|
|
|
|
(9,361
|
)
|
|
|
|
|
|
|
(9,359
|
)
|
|
|
139,953
|
|
Total assets
|
|
|
129,182
|
|
|
|
44,769
|
|
|
|
2
|
|
|
|
(8,492
|
)
|
|
|
|
|
|
|
(8,490
|
)
|
|
|
165,461
|
|
|
|
|
(a)
|
|
Total Revenue represents
Total financing revenue, Investment and other income related to sales of receivables, Insurance premiums earned, net
and
Other
income, net.
|
18
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 12. GUARANTEES AND INDEMNIFICATIONS
The fair values of guarantees and indemnifications issued are recorded in the financial
statements and are not material. At June 30, 2008, the following guarantees and indemnifications
were issued and outstanding:
Guarantees of certain obligations of unconsolidated affiliates and other affiliates
. In some
cases, we have guaranteed debt and other financial obligations of unconsolidated affiliates,
including joint ventures and Ford. Expiration dates vary, and guarantees will terminate on payment
and/or cancellation of the obligation. A payment would be triggered by failure of the guaranteed
party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled
to recover from Ford or an affiliate of Ford amounts paid by us under the guarantee. However, our
ability to enforce these rights is sometimes stayed until the guaranteed party is paid in full.
The maximum potential payments under these guarantees totaled approximately $359 million; of this
amount, $152 million was counter-guaranteed by Ford to us. No losses have been recorded for these
guarantees.
FCE has also guaranteed obligations of Ford in Romania of which the maximum potential payment
of $388 million has been fully collateralized by cash received from Ford Motor Company Limited, a
Ford U.K. subsidiary, and is recorded as
Debt
. The expiration date of the guarantee is August 2009
and could terminate on payment and/or cancellation of the obligation by Ford. A payment to the
guaranteed party would be triggered by failure of Ford to fulfill its obligation covered by the
guarantee.
Guarantees of obligations to Ford
. We have guaranteed $137 million of third-party obligations
payable to Ford Brazil. Payment would be triggered in the event of an unfavorable ruling in a
certain lawsuit and the failure of the third-parties to repay Ford the obligated amounts. The
guarantee will terminate upon the repayment or cancellation of the obligations.
Indemnifications
. In the ordinary course of business, we execute contracts involving
indemnifications standard in the industry and indemnifications specific to a transaction, such as
the sale of a business. These indemnifications might include and are not limited to claims against
any of the following: environmental, tax and shareholder matters; intellectual property rights;
governmental regulations and employment-related matters; other commercial contractual
relationships; and financial matters, such as securitizations. Performance under these indemnities
would generally be triggered by a breach of terms of the contract or by a third-party claim. We
regularly evaluate the probability of having to incur costs associated with these indemnifications
and have accrued for expected losses that are probable. We are party to numerous indemnifications
and many of these indemnities do not limit potential payment; therefore, we are unable to estimate
a maximum amount of potential future payments that could result from claims made under these
indemnities.
19
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Impairment of Net Investment in Operating Leases
During the second quarter of 2008, higher fuel prices and the weak economic climate in North
America resulted in a pronounced shift in consumer preferences from full-size trucks and
traditional sport utility vehicles to smaller, more fuel-efficient vehicles. This shift in
consumer preferences combined with a weak economic climate caused a significant reduction in
auction values and in particular for used full-size trucks and traditional sport utility vehicles.
At the end of the quarter, we completed our quarterly North America operating lease portfolio
adequacy study for accumulated depreciation and projected that lease-end residual values would be
significantly lower than previously expected for full-size trucks and traditional sport utility
vehicles.
As a result of the market factors and our adequacy study results, we tested the operating
leases of our North America Segment for recoverability as of June 30, 2008 and recorded a pre-tax
impairment charge of $2.1 billion in
Depreciation on vehicles subject to operating leases
representing the amount by which the carrying value of certain vehicle lines, primarily full-size
trucks and traditional sport utility vehicles, in our lease portfolio exceeded their fair value.
Assumptions Used and Sensitivity Analysis
. We estimate the fair value of an asset group based
on market prices (i.e., the amount for which the asset could be sold to a third party), when
available. When market prices are not available, we estimate the fair value of the asset group
using the income approach. The income approach uses discounted cash flow projections. We measured
the fair value of our North America operating lease portfolio using the projected cash flow based
on the terms of the operating lease contracts. Inherent in these cash flow projections are
estimates derived from our quarterly North America operating lease portfolio adequacy study for
accumulated depreciation. Many of the factors used in assessing fair value are outside the control
of management, and these assumptions and estimates may change in future periods.
Changes in assumptions or estimates can materially affect the determination of fair value of
an asset group, and therefore can affect the amount of the impairment. The following are key
assumptions we used in making cash flow projections for our operating leases:
|
|
|
Auction values
Our projection of the market value of the vehicles when we sell them
at the end of the lease;
|
|
|
|
Return volume
Our projection of the number of vehicles that will be returned at
lease-end; and
|
|
|
|
Discount rate
Our estimation of the discount rate, reflecting hypothetical market
assumptions regarding borrowing rates, credit loss patterns, and residual value risk.
|
Following this impairment, our total investment in operating leases was $26.6 billion as of
June 30, 2008. We estimate that a one percent decrease in the auction value of the impaired
vehicles assumed in the impairment testing would have decreased the fair value estimate by about
$50 million. A one percentage point increase in the return rate of the impaired vehicles assumed
in the impairment testing would have decreased the fair value estimate by about $30 million. A one
percentage point increase in the discount rate assumed in the impairment testing would have
decreased the fair value estimate by about $100 million. We assess the adequacy of our accumulated
depreciation quarterly and will prospectively increase depreciation expense if auction values
decline further or return volumes increase. For additional information on accumulated
depreciation, refer to the Critical Accounting Estimates Accumulated Depreciation on Vehicles
Subject to Operating Leases section of Item 7 of Part II of our 2007 10-K Report. Although, at
this time, we do not anticipate additional impairment charges, a significant worsening of the
business climate could trigger future impairment testing and would impact the assumptions we use
therein, which could result in additional impairments.
On-Balance Sheet Securitizations
. About 60% of our net investment in operating leases are
included in on-balance sheet private securitizations, and $1.3 billion of the impairment charge is
attributable to the assets included in these securitizations. We structured the enhancements in
our operating lease securitizations to protect securitization investors against residual and credit
losses. We expect that these enhancements will be sufficient to cover projected residual losses
that supported the impairment charge.
For additional information on our net investment in operating leases, refer to Note 3 of our
Notes to the Financial Statements, and the On-Balance Sheet Operating Lease Arrangements section
of Item 2.
20
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Second Quarter 2008 Compared with Second Quarter 2007
In the second quarter of 2008, our net loss was $1.4 billion, compared with $62 million net
income a year ago. On a pre-tax basis, we incurred a loss of $2.4 billion in the second quarter of
2008, compared with earnings of $112 million a year ago. The decrease in pre-tax earnings
primarily reflected the significant decline in used vehicle auction values during the second
quarter of 2008. This decline in auction values contributed to:
|
|
|
An impairment charge to our North America Segment operating lease portfolio for
contracts terminating beginning third quarter of 2008 (about $2.1 billion);
|
|
|
|
Higher depreciation expense for leased vehicles (about $500 million); and
|
|
|
|
A higher provision for credit losses (about $500 million).
|
These factors were offset partially by:
|
|
|
The non-recurrence of net losses related to market valuation adjustments from
derivatives (about $300 million);
|
|
|
|
Higher financing margin primarily attributable to lower borrowing costs (about
$100 million);
|
|
|
|
A gain related to the sale of approximately half of our ownership interest in our
Nordic operations (about $100 million); and
|
|
|
|
Lower expenses primarily reflecting improved operating costs (about $100 million).
|
In the second quarter of 2008, pre-tax earnings included net gains related to market valuation
adjustments from derivatives (unallocated risk management in the table below) of $12 million. In
the second quarter of 2007, pre-tax earnings included net losses related to market valuation
adjustments from derivatives of $316 million.
Results of our operations by business segment and unallocated risk management for the second
quarter of 2008 and 2007 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Over/(Under)
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(in millions)
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Segment
|
|
$
|
(2,606
|
)
|
|
$
|
260
|
|
|
$
|
(2,866
|
)
|
International Segment
|
|
|
214
|
|
|
|
168
|
|
|
|
46
|
|
Unallocated risk management
|
|
|
12
|
|
|
|
(316
|
)
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes
|
|
|
(2,380
|
)
|
|
|
112
|
|
|
|
(2,492
|
)
|
Provision for/(Benefit from) income
taxes, Minority interests in net
income of subsidiaries, and Gain on
disposal of discontinued operations
|
|
|
(953
|
)
|
|
|
50
|
|
|
|
(1,003
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
(1,427
|
)
|
|
$
|
62
|
|
|
$
|
(1,489
|
)
|
|
|
|
|
|
|
|
|
|
|
The decrease in North America Segment pre-tax earnings primarily reflected the impairment
charge for operating leases, higher depreciation expense for leased vehicles, and higher provision
for credit losses. These factors were offset partially by lower operating costs and higher
financing margin.
International Segment pre-tax earnings primarily reflected a gain related to the sale of
approximately half of our ownership interest in our Nordic operations and favorable currency
exchange rates, offset partially by a higher provision for credit losses.
The change in unallocated risk management reflected the non-recurrence of net losses related
to market valuation adjustments from derivatives primarily related to movements in interest rates.
For additional information on our unallocated risk management, refer to Note 11 of our Notes to the
Financial Statements.
21
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
First Half 2008 Compared with First Half 2007
In the first half of 2008, our net loss was $1.4 billion, compared with $255 million net
income a year ago. On a pre-tax basis, we incurred a loss of $2.3 billion in the first half of
2008, compared with earnings of $406 million a year ago. The decrease in pre-tax earnings
primarily reflected the significant decline in used vehicle auction values during the second
quarter of 2008. This decline in auction values contributed to:
|
|
|
An impairment charge to our North America Segment operating lease portfolio for
contracts terminating beginning third quarter of 2008 (about $2.1 billion);
|
|
|
|
A higher provision for credit losses (about $800 million); and
|
|
|
|
Higher depreciation expense for leased vehicles (about $600 million).
|
These factors were offset partially by:
|
|
|
Lower expenses primarily reflecting improved operating costs and the non-recurrence of
costs associated with our North American business transformation initiative (about
$200 million);
|
|
|
|
The non-recurrence of net losses related to market valuation adjustments from
derivatives (about $200 million);
|
|
|
|
Higher financing margin primarily attributable to lower borrowing costs (about $200
million); and
|
|
|
|
A gain related to the sale of approximately half of our ownership interest in our
Nordic operations (about $100 million).
|
In the first half of 2008 and 2007, pre-tax earnings included net losses related to market
valuation adjustments from derivatives (unallocated risk management in the table below) of
$150 million and $353 million, respectively.
Results of our operations by business segment and unallocated risk management for the first
half of 2008 and 2007 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Over/(Under)
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(in millions)
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Segment
|
|
$
|
(2,568
|
)
|
|
$
|
432
|
|
|
$
|
(3,000
|
)
|
International Segment
|
|
|
370
|
|
|
|
327
|
|
|
|
43
|
|
Unallocated risk management
|
|
|
(150
|
)
|
|
|
(353
|
)
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes
|
|
|
(2,348
|
)
|
|
|
406
|
|
|
|
(2,754
|
)
|
Provision for/(Benefit from) income
taxes, Minority interests in net
income of subsidiaries, and Gain on
disposal of discontinued operations
|
|
|
(945
|
)
|
|
|
151
|
|
|
|
(1,096
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
(1,403
|
)
|
|
$
|
255
|
|
|
$
|
(1,658
|
)
|
|
|
|
|
|
|
|
|
|
|
The decrease in North America Segment pre-tax earnings primarily reflected the impairment
charge for operating leases, higher provision for credit losses, and higher depreciation expense
for leased vehicles. These factors were offset partially by lower expenses primarily related to
the non-recurrence of costs due to our business transformation initiative and higher financing
margin.
International Segment pre-tax earnings primarily reflected a gain related to the sale of
approximately half of our ownership interest in our Nordic operations and favorable currency
exchange rates, offset by a higher provision for credit losses and lower contract volume.
The change in unallocated risk management reflected lower net losses related to market
valuation adjustments from derivatives primarily related to movements in interest rates.
22
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Placement Volume and Financing Share
Total worldwide financing contract placement volumes for new and used vehicles are shown
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
First Half
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
North America Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
312
|
|
|
|
354
|
|
|
|
587
|
|
|
|
659
|
|
Canada
|
|
|
48
|
|
|
|
59
|
|
|
|
79
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total North America Segment
|
|
|
360
|
|
|
|
413
|
|
|
|
666
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
177
|
|
|
|
186
|
|
|
|
355
|
|
|
|
371
|
|
Other international
|
|
|
29
|
|
|
|
47
|
|
|
|
78
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International Segment
|
|
|
206
|
|
|
|
233
|
|
|
|
433
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract placement volume
|
|
|
566
|
|
|
|
646
|
|
|
|
1,099
|
|
|
|
1,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shown below are our financing shares of new Ford, Lincoln and Mercury brand vehicles sold by
dealers in the United States and new Ford brand vehicles sold by dealers in Europe. Also shown
below are our wholesale financing shares of new Ford, Lincoln and Mercury brand vehicles acquired
by dealers in the United States, excluding fleet, and of new Ford brand vehicles acquired by
dealers in Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
First Half
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing share Ford, Lincoln and Mercury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
39
|
%
|
|
|
38
|
%
|
|
|
38
|
%
|
|
|
37
|
%
|
Wholesale
|
|
|
77
|
|
|
|
78
|
|
|
|
77
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing share Ford
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
28
|
%
|
|
|
27
|
%
|
|
|
27
|
%
|
|
|
26
|
%
|
Wholesale
|
|
|
98
|
|
|
|
97
|
|
|
|
97
|
|
|
|
97
|
|
North America Segment
In the second quarter of 2008, our total placement volumes were 360,000 contracts, down 53,000
from a year ago. This decrease primarily reflected lower sales of new Ford, Lincoln and Mercury
vehicles, due primarily to lower U.S. industry volumes and market share.
In the first half of 2008, our total placement volumes were 666,000 contracts, down 87,000
from a year ago, reflecting the causal factors described above.
International Segment
In the second quarter of 2008, our total contract placement volumes were 206,000, down
27,000 contracts from a year ago. This decrease primarily reflected lower volumes in Germany and
Spain, and the divestiture of our Japan operation.
In the first half of 2008, our total International contract placement volumes were 433,000,
down 44,000 contracts from a year ago. This decrease primarily reflected lower volumes in Germany
and Mexico, and the divestiture of our Japan operation.
23
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Financial Condition
Finance Receivables and Operating Leases
Our receivable levels are shown below:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in billions)
|
|
Receivables
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
|
|
|
|
|
|
Retail installment
|
|
$
|
70.9
|
|
|
$
|
73.3
|
|
Wholesale
|
|
|
35.9
|
|
|
|
34.7
|
|
Other
|
|
|
3.3
|
|
|
|
3.4
|
|
Unearned interest supplements
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables, net
|
|
|
109.1
|
|
|
|
111.4
|
|
Net investment in operating leases
|
|
|
26.6
|
|
|
|
29.7
|
|
|
|
|
|
|
|
|
Total on-balance sheet (a)(b)
|
|
$
|
135.7
|
|
|
$
|
141.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized Off-Balance Sheet Retail
|
|
$
|
3.0
|
|
|
$
|
6.0
|
|
|
|
|
|
|
|
|
|
|
Managed
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
|
|
|
|
|
|
Retail installment
|
|
$
|
73.9
|
|
|
$
|
79.3
|
|
Wholesale
|
|
|
35.9
|
|
|
|
34.7
|
|
Other
|
|
|
3.3
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
Managed finance receivables, net
|
|
|
113.1
|
|
|
|
117.4
|
|
Net investment in operating leases
|
|
|
26.6
|
|
|
|
29.7
|
|
|
|
|
|
|
|
|
Total managed (c)
|
|
$
|
139.7
|
|
|
$
|
147.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Serviced
|
|
$
|
140.2
|
|
|
$
|
148.0
|
|
|
|
|
(a)
|
|
At June 30, 2008 and December 31, 2007, includes finance
receivables of $77.4 billion and $67.2 billion, respectively, that
have been sold for legal purposes in securitizations that do not
satisfy the requirements for accounting sale treatment. In addition,
at June 30, 2008 and December 31, 2007, includes net investment in
operating leases of $15.2 billion and $18.9 billion, respectively,
that have been included in securitizations that do not satisfy the
requirements for accounting sale treatment. These underlying
securitized assets are available only for payment of the debt or
other obligations issued or arising in the securitization
transactions; they are not available to pay our other obligations or
the claims of our other creditors until the associated debt or other
obligations are satisfied.
|
|
(b)
|
|
Includes allowance for credit losses of $1.5 billion and
$1.1 billion at June 30, 2008 and December 31, 2007, respectively.
|
|
(c)
|
|
Excludes unearned interest supplements related to
finance receivables.
|
Managed receivables decreased from year-end 2007, more than explained by lower North America
receivables, the impact of divestitures, and the impairment charge for North America Segment
operating leases, offset partially by changes in currency exchange rates.
As of January 1, 2008, Ford began paying interest supplements and residual value support to us
at the time we purchase eligible contracts from dealers. At June 30, 2008, our unearned interest
supplements for finance receivables were $1.0 billion included in
Finance receivables, net
and our
unearned interest supplements and residual support payments for net investment in operating leases
were $1.1 billion included in
Other liabilities and deferred income
.
At June 30, 2008, in the United States and Canada, Ford is obligated to pay us $3.7 billion of
interest supplements (including supplements related to sold receivables) and about $600 million of
residual value support over the terms of the related finance contracts and operating leases,
compared with $5.4 billion of interest supplements and about $900 million of residual value support
at December 31, 2007, in each case for contracts purchased or originated prior to January 1, 2008.
The interest supplements and residual value support obligations on these contracts will continue to
decline as the contracts liquidate. For additional information on our finance receivables and net
investment in operating leases, refer to Notes 1, 2, and 3 of our Notes to the Financial
Statements.
24
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Credit Risk
Credit risk is the possibility of loss from a customers or dealers failure to make payments
according to contract terms. Credit risk has a significant impact on our business. We actively
manage the credit risk of our retail installment and lease and wholesale and dealer loan portfolios
to balance our level of risk and return. The allowance for credit losses reflected on our balance
sheet is our estimate of the probable credit losses inherent in receivables and leases at the date
of our balance sheet. Consistent with our normal practices and policies, we assess the adequacy of
our allowance for credit losses quarterly and regularly evaluate the assumptions and models used in
establishing the allowance. In the second quarter of 2008, we updated our assumptions to reflect
higher severities, which increased our allowance for credit losses by about $190 million at June
30, 2008.
In purchasing retail finance and lease contracts, we use a proprietary scoring system that
classifies contracts using several factors, such as credit bureau information, FICO score,
employment history, income, amount financed, vehicle value, and contract term. As of June 30,
2008, about 4% of the outstanding U.S. retail finance and lease contracts in our serviced portfolio
were classified as high risk at contract inception, about the same as year-end 2007 and down from
about 8% in 2000, consistent with our efforts to improve the credit quality of our portfolio.
25
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Credit Loss Metrics
Worldwide
The following table shows worldwide credit losses, net of recoveries (charge-offs), for the
various categories of financing during the periods indicated. The loss-to-receivables ratios,
which equal charge-offs on an annualized basis divided by the average amount of receivables
outstanding for the period, excluding the allowance for credit losses and unearned interest
supplements related to finance receivables, are shown below for our on-balance sheet and managed
portfolios.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
First Half
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
$
|
232
|
|
|
$
|
116
|
|
|
$
|
458
|
|
|
$
|
218
|
|
Wholesale
|
|
|
12
|
|
|
|
8
|
|
|
|
13
|
|
|
|
12
|
|
Other
|
|
|
2
|
|
|
|
1
|
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet
|
|
$
|
246
|
|
|
$
|
125
|
|
|
$
|
475
|
|
|
$
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized Off-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
$
|
8
|
|
|
$
|
14
|
|
|
$
|
22
|
|
|
$
|
32
|
|
Wholesale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitized off-balance sheet
|
|
$
|
8
|
|
|
$
|
14
|
|
|
$
|
22
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
$
|
240
|
|
|
$
|
130
|
|
|
$
|
480
|
|
|
$
|
250
|
|
Wholesale
|
|
|
12
|
|
|
|
8
|
|
|
|
13
|
|
|
|
12
|
|
Other
|
|
|
2
|
|
|
|
1
|
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total managed
|
|
$
|
254
|
|
|
$
|
139
|
|
|
$
|
497
|
|
|
$
|
264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss-to-Receivables Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
0.92
|
%
|
|
|
0.47
|
%
|
|
|
0.89
|
%
|
|
|
0.45
|
%
|
Wholesale
|
|
|
0.13
|
|
|
|
0.09
|
|
|
|
0.07
|
|
|
|
0.06
|
|
Total including other
|
|
|
0.70
|
%
|
|
|
0.36
|
%
|
|
|
0.67
|
%
|
|
|
0.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
0.91
|
%
|
|
|
0.48
|
%
|
|
|
0.90
|
%
|
|
|
0.46
|
%
|
Wholesale
|
|
|
0.13
|
|
|
|
0.09
|
|
|
|
0.07
|
|
|
|
0.06
|
|
Total including other
|
|
|
0.70
|
%
|
|
|
0.38
|
%
|
|
|
0.68
|
%
|
|
|
0.36
|
%
|
Most of our charge-offs are related to retail installment sale and lease contracts.
Charge-offs depend on the number of vehicle repossessions, the unpaid balance outstanding at the
time of repossession, the auction price of repossessed vehicles and other losses associated with
impaired accounts and unrecoverable vehicles. We also incur credit losses on our wholesale loans,
but default rates for these receivables historically have been substantially lower than those for
retail installment sale and lease contracts.
Charge-offs and loss-to-receivables ratios for our on-balance sheet and managed portfolios
increased from a year ago. These increases, principally in the U.S. retail installment and lease
portfolio, primarily reflected higher severity.
26
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
U.S. Ford, Lincoln and Mercury Brand Retail Installment and Operating Lease
The following table shows the credit loss metrics for our Ford, Lincoln and Mercury brand U.S.
retail installment sale and operating lease portfolio. This portfolio was approximately 60% of our
worldwide managed portfolio of retail installment receivables and net investment in operating
leases at June 30, 2008. In the second quarter of 2008, on-balance sheet charge-offs were higher
compared to the same period a year ago primarily due to higher severity and higher repossessions in
the retail and lease portfolio. Severity was higher by $3,000 per unit, mainly due to the overall
auction value deterioration in the used vehicle market, along with an increase in amount financed,
and a higher mix of 72-month contracts for vehicles repossessed in our portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
First Half
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs (in millions)
|
|
$
|
160
|
|
|
$
|
75
|
|
|
$
|
315
|
|
|
$
|
144
|
|
Loss-to-receivables ratios
|
|
|
1.11
|
%
|
|
|
0.51
|
%
|
|
|
1.09
|
%
|
|
|
0.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs (in millions)
|
|
$
|
167
|
|
|
$
|
82
|
|
|
$
|
332
|
|
|
$
|
163
|
|
Loss-to-receivables ratios
|
|
|
1.11
|
%
|
|
|
0.51
|
%
|
|
|
1.09
|
%
|
|
|
0.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Metrics Serviced
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repossessions (in thousands)
|
|
|
18
|
|
|
|
16
|
|
|
|
38
|
|
|
|
35
|
|
Repossession ratios (a)
|
|
|
1.98
|
%
|
|
|
1.61
|
%
|
|
|
2.07
|
%
|
|
|
1.77
|
%
|
Severity (average loss per repossession)
|
|
$
|
10,000
|
|
|
$
|
7,000
|
|
|
$
|
9,300
|
|
|
$
|
6,800
|
|
New bankruptcy filings (in thousands)
|
|
|
9
|
|
|
|
7
|
|
|
|
17
|
|
|
|
13
|
|
Over-60 day delinquency ratio (b)
|
|
|
0.20
|
%
|
|
|
0.15
|
%
|
|
|
0.21
|
%
|
|
|
0.16
|
%
|
|
|
|
(a)
|
|
Repossessions as a percent of the average number of accounts outstanding during the periods.
|
|
(b)
|
|
Delinquencies are expressed as a percent of the accounts outstanding for non-bankrupt accounts.
|
Allowance for Credit Losses
Our allowance for credit losses and our allowance for credit losses as a percentage of
end-of-period receivables (finance receivables, excluding unearned interest supplements, and net
investment in operating leases, excluding the allowance for credit losses) for our on-balance sheet
portfolio are shown below. A description of our allowance setting process is provided in the
Critical Accounting Estimates Allowance for Credit Losses section of Item 7 of Part II of our
2007 10-K Report.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
Allowance for Credit Losses
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
$
|
1,432
|
|
|
$
|
1,026
|
|
Wholesale
|
|
|
60
|
|
|
|
58
|
|
Other
|
|
|
1
|
|
|
|
6
|
|
|
|
|
|
|
|
|
Total allowance for credit losses
|
|
$
|
1,493
|
|
|
$
|
1,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percentage of End-of-Period Receivables
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
1.45
|
%
|
|
|
0.99
|
%
|
Wholesale
|
|
|
0.17
|
|
|
|
0.17
|
|
Total including other
|
|
|
1.08
|
%
|
|
|
0.77
|
%
|
In the second quarter of 2008, we updated our assumptions to reflect higher severities, which
increased our allowance for credit losses by about $190 million at June 30, 2008. The total
increase in allowance for credit losses is consistent with the increase in charge-offs and the
change in our severity assumptions. The allowance for credit losses is primarily a function of
portfolio quality, historical loss performance, and receivable levels.
27
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Residual Risk
We are exposed to residual risk on operating leases and similar balloon payment products where
the customer may return the financed vehicle to us. Residual risk is the possibility that the
amount we obtain from returned vehicles will be less than our estimate of the expected residual
value for the vehicle. We estimate the expected residual value by evaluating recent auction
values, return volumes for our leased vehicles, industry-wide used vehicle prices, marketing
incentive plans, and vehicle quality data. For additional information on our residual risk on
operating leases, refer to the Critical Accounting Estimates Accumulated Depreciation on
Vehicles Subject to Operating Leases section of Item 7 of Part II of our 2007 10-K Report.
In the second quarter of 2008, we recorded a pre-tax impairment charge of $2.1 billion on our
North America Segment operating lease portfolio. For additional information on our operating lease
portfolio, refer to Note 3 of our Notes to the Financial Statements and the Results of Operations
Impairment of Net Investment in Operating Leases section of Item 2.
North America Retail Operating Lease Experience
We use various statistics to monitor our residual risk:
|
|
|
Placement volume measures the number of leases we purchase in a given period;
|
|
|
|
Termination volume measures the number of vehicles for which the lease has ended in the
given period; and
|
|
|
|
Return volume reflects the number of vehicles returned to us by customers at lease-end.
|
The following table shows operating lease placement, termination and return volumes for our
North America Segment, which accounted for about 97% of our total investment in operating leases at
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
First Half
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Placements
|
|
|
106
|
|
|
|
139
|
|
|
|
219
|
|
|
|
249
|
|
Terminations
|
|
|
110
|
|
|
|
108
|
|
|
|
204
|
|
|
|
199
|
|
Returns
|
|
|
94
|
|
|
|
85
|
|
|
|
173
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return rates
|
|
|
85
|
%
|
|
|
78
|
%
|
|
|
85
|
%
|
|
|
79
|
%
|
In the second quarter of 2008, placement volumes were down 33,000 units compared with the same
period a year ago, primarily reflecting lower U.S. industry volumes and market share. Termination
volumes increased 2,000 units compared with the same period a year ago primarily reflecting growth
in lease placements since 2004. Return volumes increased 9,000 units compared with a year ago,
primarily reflecting the higher termination volumes and an increase in the return rate to 85% from
78%. The higher return volumes and rates are consistent with a decrease in auction values relative
to our expectations at the time of contract purchase and a shift in consumer preferences from
full-size trucks and traditional sport utility vehicles.
In the first half of 2008, placement volumes were down 30,000 units compared with the same
period a year ago. Termination volumes increased 5,000 units compared with the same period a year
ago, consistent with the causal factors described above. Return volumes increased 16,000 units
compared with the same period a year ago, consistent with the causal factors described above.
28
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
U.S. Ford, Lincoln and Mercury Brand Retail Operating Lease Experience
The following table shows return volumes for our Ford, Lincoln and Mercury brand U.S.
operating lease portfolio. Also included are auction values at constant second quarter 2008
vehicle mix for lease terms comprising about 70% of our active Ford, Lincoln and Mercury brand U.S.
operating lease portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
First Half
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Returns
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24-Month term
|
|
|
24
|
|
|
|
22
|
|
|
|
53
|
|
|
|
47
|
|
36-Month term
|
|
|
14
|
|
|
|
16
|
|
|
|
28
|
|
|
|
30
|
|
39-Month/Other term
|
|
|
5
|
|
|
|
10
|
|
|
|
10
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total returns
|
|
|
43
|
|
|
|
48
|
|
|
|
91
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return rates
|
|
|
87
|
%
|
|
|
81
|
%
|
|
|
87
|
%
|
|
|
82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction Values at
Constant Second
Quarter 2008
Vehicle Mix
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24-Month term
|
|
$
|
14,570
|
|
|
$
|
17,305
|
|
|
$
|
15,345
|
|
|
$
|
17,260
|
|
36-Month term
|
|
|
12,685
|
|
|
|
15,060
|
|
|
|
13,160
|
|
|
|
15,110
|
|
In the second quarter of 2008, Ford, Lincoln and Mercury brand U.S. return volumes were down
5,000 units compared with the same period a year ago. However, the return rate increased to 87%,
consistent with a decrease in auction values compared to our expectations of lease-end values at
the time of contract purchase, and reflecting a shift in consumer preferences from full-size trucks
and traditional sport utility vehicles. Auction values at constant second quarter 2008 mix for
24-month and 36-month lease vehicles were down $2,735 per unit and $2,375 per unit, respectively,
from year ago levels, primarily reflecting the overall auction value deterioration in the used
vehicle market.
In the second quarter of 2008, overall auction values for Ford, Lincoln and Mercury brand U.S.
vehicles for 24-month and 36-month leases were down $1,415 or 8.9% and $970 or 7.1%, respectively,
compared with the first quarter of 2008, at constant second quarter 2008 mix. For the same
periods, full-size truck and traditional sport utility vehicle auction values for 24-month and
36-month leases were down $1,965 or 11.6% and $1,890 or 12.3%, respectively, also at constant
second quarter 2008 mix.
In the first half of 2008, trends and causal factors compared with the same period a year ago
were consistent with those described above.
29
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Credit Ratings
Our short-term and long-term debt is rated by four credit rating agencies designated as
nationally recognized statistical rating organizations (NRSROs) by the Securities and Exchange
Commission (SEC):
|
|
|
Moodys Investors Service, Inc. (Moodys); and
|
|
|
|
Standard & Poors Rating Services, a division of The McGraw-Hill Companies, Inc.
(S&P).
|
For the ratings assigned to us, in June 2008, DBRS placed the ratings under review with
negative implications, Moodys changed the ratings outlook from stable to negative, and S&P placed
the ratings on CreditWatch with negative implications. In July 2008, S&P lowered the long-term
senior unsecured rating to B- from B and stopped rating our short-term unsecured debt. Also in
July 2008, S&P removed the ratings from CreditWatch while maintaining a negative outlook. In
August 2008, Fitch lowered the issuer default rating to B- from B and the long-term senior
unsecured rating to B+ from BB-. The following chart summarizes certain of the credit ratings and
the outlook presently assigned to us by these four NRSROs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NRSRO RATINGS
|
|
|
DBRS
|
|
Fitch
|
|
Moodys
|
|
S&P
|
|
|
Long-
|
|
Short-
|
|
|
|
Long-
|
|
Short-
|
|
|
|
Long-
|
|
Short-
|
|
|
|
Long-
|
|
Short-
|
|
|
|
|
Term
|
|
Term
|
|
Trend
|
|
Term
|
|
Term
|
|
Outlook
|
|
Term
|
|
Term
|
|
Outlook
|
|
Term
|
|
Term
|
|
Outlook
|
|
Jan. 2008
|
|
B
|
|
R-4
|
|
Stable
|
|
BB-
|
|
B
|
|
Negative
|
|
B1
|
|
NP
|
|
Stable
|
|
B
|
|
B-3
|
|
Stable
|
|
June 2008
|
|
B
|
|
R-4
|
|
Review
Negative
|
|
BB-
|
|
B
|
|
Negative
|
|
B1
|
|
NP
|
|
Negative
|
|
B
|
|
B-3
|
|
Watch Negative
|
July 2008
|
|
B
|
|
R-4
|
|
Review
|
|
BB-
|
|
B
|
|
Negative
|
|
B1
|
|
NP
|
|
Negative
|
|
B-*
|
|
NR
|
|
Negative
|
|
|
|
|
|
|
Negative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aug. 2008
|
|
B
|
|
R-4
|
|
Review
Negative
|
|
B+
|
|
B-
|
|
Negative
|
|
B1
|
|
NP
|
|
Negative
|
|
B-*
|
|
NR
|
|
Negative
|
|
|
|
*
|
|
S&P assigns FCE Bank plc (FCE) a long-term senior unsecured rating of B, maintaining a one
notch differential versus Ford Credit.
|
30
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Funding
Our funding strategy is to maintain liquidity to meet short-term funding obligations by having
a substantial cash balance and committed funding capacity. As a result of lower credit ratings
over the past few years, our unsecured funding costs have increased over time. While we continue
to access the unsecured debt market when it makes sense to do so, we have increased our use of
securitization funding as it is presently more cost effective than unsecured funding and has
allowed us access to a broad investor base. We plan to meet a significant portion of our 2008
funding requirements through securitizations, and to continue to diversify our asset-backed funding
by asset class and region. In addition, we have various alternative business arrangements for
select products and markets that reduce our funding requirements while allowing us to support Ford
(e.g., our partnering in Brazil for retail financing and FCEs partnering with various institutions
in Europe for full service leasing and retail financing). We are continuing to explore and execute
such alternative business arrangements.
Consistent with the overall market, we have been impacted by volatility in the asset-backed
securities markets beginning in August 2007. Since then, we have experienced higher credit spreads
and, in certain circumstances, shorter maturities in our public and private securitization
issuances. In addition, committed liquidity program renewals have come at a higher cost. Given
present market conditions, we expect that our credit spreads and the cost of renewing our committed
liquidity programs will continue to be higher in 2008 than prior to August 2007. About 25% of our
committed capacity is up for renewal during the remainder of 2008. Given the nature of our
asset-backed committed facilities, we have the ability to obtain term funding up to the time that
the facilities mature. Any outstanding debt at the maturity of the facilities remains outstanding
through the term of the underlying assets. For additional information on our committed capacity
programs, refer to the Liquidity section of Item 2.
Our funding plan is subject to risks and uncertainties, many of which are beyond our control.
If auction values for used vehicles continue to weaken or further reductions occur in the market
capacity for the types of asset-backed securities used in our asset-backed funding, there could be
increased risk to our funding plan. As a result, we may need to reduce the amount of receivables
and operating leases we purchase or originate. A significant reduction in our managed receivables
would reduce our ongoing profits, and could adversely affect our ability to support the sale of
Ford vehicles. For additional information on our lease securitizations, refer to the On-Balance
Sheet Operating Lease Arrangements section of Item 2.
31
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Funding Portfolio
Our outstanding debt and securitized off-balance sheet funding was as follows on the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in billions)
|
|
Debt
|
|
|
|
|
|
|
|
|
Asset-backed commercial paper*
|
|
$
|
14.2
|
|
|
$
|
13.5
|
|
Other asset-backed short-term debt*
|
|
|
4.8
|
|
|
|
6.2
|
|
Ford Interest Advantage
|
|
|
4.8
|
|
|
|
5.4
|
|
Unsecured commercial paper
|
|
|
0.5
|
|
|
|
0.5
|
|
Other short-term debt
|
|
|
1.9
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
Total short-term debt
|
|
|
26.2
|
|
|
|
27.1
|
|
Unsecured long-term debt (including notes
payable within one year)
|
|
|
55.6
|
|
|
|
62.8
|
|
Asset-backed long-term debt (including notes
payable within one year)*
|
|
|
55.7
|
|
|
|
49.5
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
137.5
|
|
|
|
139.4
|
|
|
|
|
|
|
|
|
|
|
Securitized Off-Balance Sheet Funding
|
|
|
|
|
|
|
|
|
Securitized off-balance sheet portfolio
|
|
|
3.0
|
|
|
|
6.0
|
|
Retained interest
|
|
|
(0.4
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
Total securitized off-balance sheet funding
|
|
|
2.6
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
Total debt plus securitized off-balance
sheet funding
|
|
$
|
140.1
|
|
|
$
|
144.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
Credit lines to total unsecured commercial paper
|
|
|
>100
|
%
|
|
|
>100
|
%
|
Securitized funding to managed receivables
|
|
|
55
|
|
|
|
51
|
|
Short-term debt and notes payable within one year
to total debt
|
|
|
44
|
|
|
|
43
|
|
Short-term debt and notes payable within one year
to total capitalization
|
|
|
40
|
|
|
|
39
|
|
|
|
|
*
|
|
Obligations issued in securitizations that are payable only out of collections on the
underlying securitized assets and related enhancements.
|
At June 30, 2008, unsecured long-term debt (including notes payable within one year) was down
about $7 billion from year-end 2007, primarily reflecting about $10 billion of debt maturities.
These maturities were offset partially by unsecured debt issuances of about $2 billion and an
increase of about $1 billion primarily reflecting changes in currency exchange rates. Asset-backed
long-term debt (including notes payable within one year) was up about $6 billion from year-end
2007, reflecting asset-backed long-term debt issuances in excess of amortization of asset-backed
debt. Securitized off-balance sheet funding was down about $3 billion from year-end 2007,
reflecting the amortization of previous securitizations.
32
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Term Funding Plan
The following table shows our public and private term funding issuances in 2007 and through
July 31, 2008, and our planned issuances for full year 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
Full Year
|
|
|
Through
|
|
|
2007
|
|
|
|
Forecast
|
|
|
July 31,
|
|
|
Actual
|
|
|
|
|
|
|
|
(in billions)
|
|
|
|
|
|
Public Term Funding
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
$
|
1 3
|
|
|
$
|
1
|
|
|
$
|
6
|
|
Securitizations (a)
|
|
|
12 15
|
|
|
|
10
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
Total public term funding
|
|
$
|
13 18
|
|
|
$
|
11
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Term Funding
(b)
|
|
$
|
12 18
|
|
|
$
|
11
|
|
|
$
|
28
|
|
|
|
|
(a)
|
|
Reflects new issuance; excludes whole-loan sales and other structured financings.
|
|
(b)
|
|
Includes private term debt, securitizations, whole-loan sales
and other structured financings; excludes
sales to Ford Credits on-balance sheet asset-backed commercial paper programs.
|
Through July 31, 2008, we completed about $11 billion of public term funding transactions,
including: about $1 billion of unsecured long-term debt; about $9 billion of retail asset-backed
securitizations in the United States, including a $5.4 billion transaction in May 2008; and the
remainder consisting of a retail asset-backed securitization in Germany. We expect our full year
2008 public term funding requirements to be between $13 billion and $18 billion.
Through July 31, 2008, we completed about $11 billion of private term funding transactions
(excluding our on-balance sheet asset-backed commercial paper program and proceeds from revolving
transactions) in several markets. These private transactions included wholesale, retail and lease
asset-backed securitizations, and unsecured term debt.
Through July 31, 2008, we completed about $22 billion of public and private term funding,
which is about two-thirds of our full year plan.
33
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Liquidity
We define liquidity as cash, cash equivalents and marketable securities (excluding marketable
securities related to insurance activities) and capacity (which includes capacity in our committed
liquidity programs, asset backed commercial paper program (FCAR) and credit facilities), less
asset-backed capacity in excess of eligible receivables and cash required to support on-balance
sheet securitizations. We maintain multiple sources of liquidity, including committed asset-backed
funding capacity beyond our present needs.
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
|
|
2007
|
|
|
|
(in billions)
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities (a)
|
|
$
|
19.6
|
|
|
|
|
$
|
16.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Committed liquidity programs
|
|
$
|
35.4
|
|
|
|
|
$
|
36.8
|
|
Asset-backed commercial paper (FCAR)
|
|
|
16.3
|
|
(b)
|
|
|
|
16.9
|
|
Credit facilities
|
|
|
2.7
|
|
(b)
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
Committed capacity
|
|
$
|
54.4
|
|
(b)
|
|
|
$
|
56.7
|
|
|
|
|
|
|
|
|
|
|
Committed capacity and cash
|
|
$
|
74.0
|
|
|
|
|
$
|
73.4
|
|
Less: Capacity in excess of eligible receivables
|
|
|
(7.8
|
)
|
|
|
|
|
(4.7
|
)
|
Less: Cash to support on-balance sheet securitizations
|
|
|
(5.4
|
)
|
|
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
|
Liquidity
|
|
$
|
60.8
|
|
(b)
|
|
|
$
|
64.0
|
|
Less: Utilization
|
|
|
(37.8
|
)
|
|
|
|
|
(36.1
|
)
|
|
|
|
|
|
|
|
|
|
Liquidity available for use
|
|
$
|
23.0
|
|
(b)
|
|
|
$
|
27.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Excludes marketable securities related to insurance activities.
|
|
(b)
|
|
As of July 1, 2008.
|
At June 30, 2008, the capacity of our liquidity sources and cash totaled $74.0 billion, of
which $60.8 billion could be utilized (after adjusting for capacity in excess of eligible
receivables of $7.8 billion and cash required to support on-balance sheet securitizations of
$5.4 billion). As of June 30, 2008, $37.8 billion was utilized, leaving $23.0 billion (including
$14.2 billion of cash, cash equivalents, and marketable securities and excluding marketable
securities related to insurance activities) available for use. In addition to the $23.0 billion of
liquidity available for use, the $7.8 billion of capacity in excess of eligible receivables
provides us with an alternative to uncommitted sources for funding future purchases or originations
and gives us flexibility to efficiently shift capacity to markets and asset classes where it can be
used.
Cash, Cash Equivalents and Marketable Securities.
At June 30, 2008, our cash, cash
equivalents, and marketable securities (excluding marketable securities related to insurance
activities) totaled $19.6 billion, compared with $16.7 billion at year-end 2007. In the normal
course of our funding activities, we may generate more proceeds than are required for our immediate
funding needs. These excess amounts are maintained primarily as highly liquid investments, which
provide liquidity for our short-term funding needs and give us flexibility in the use of our other
funding programs. Our cash, cash equivalents and marketable securities (excluding marketable
securities related to insurance activities) primarily include federal agency securities, bank time
deposits with investment grade institutions, A-1/P-1 (or higher) rated commercial paper, and U.S.
Treasury bills. With the exception of $3.5 billion of highly liquid long-term federal agency
securities, the average maturity of these investments is typically less than 90 days and is
adjusted based on market conditions and liquidity needs. We monitor our cash levels and average
maturity on a daily basis. Cash balances include amounts to be used only to support our on-balance
sheet securitizations of $5.4 billion at June 30, 2008 and $4.7 billion at December 31, 2007.
Committed Liquidity Programs.
We and our subsidiaries, including FCE, have entered into
agreements with a number of bank-sponsored asset-backed commercial paper conduits (conduits) and
other financial institutions whereby such parties are contractually committed, at our option, to
purchase from us eligible retail or wholesale assets or to purchase or make advances under
asset-backed securities backed by retail or wholesale assets for proceeds of up to $29.4 billion at
June 30, 2008 ($17.5 billion retail and $11.9 billion wholesale) of which $10.4 billion are
commitments to FCE. These committed liquidity programs have varying maturity dates, with
$20.3 billion having maturities within the next twelve months (of which $3.8 billion relates to FCE
commitments), and the balance having maturities between August 2009 and September 2011. As a
result of the continued asset-backed securities market volatility that began in August 2007, there
is a risk to the renewal of some of these committed liquidity programs, which could lead to a
reduction in the size of these programs and/or higher costs. Our ability to obtain funding under
these programs is subject to having a sufficient amount of assets eligible for these programs. At
June 30, 2008, $19.1 billion of these commitments were in
use. These programs are extremely liquid
funding sources as we are able to obtain funding from available capacity generally within two days.
These
programs are free of material adverse change clauses, restrictive financial covenants (for
example, debt-to-equity limitations and minimum net worth requirements), and credit rating triggers
that could limit our ability to obtain funding. However, the unused portion of these commitments
may be terminated if the performance of the underlying assets deteriorates beyond specified levels.
Based on our experience and knowledge as servicer of the related assets, we do not expect any of
these programs to be terminated due to such events.
34
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
In addition, we have a committed liquidity program for the purchase of up to $6 billion of
unrated asset-backed securities of which $4 billion is committed through 2009. At our option, this
program can be supported with retail, wholesale, or lease assets. Our ability to obtain funding
under this program is subject to having a sufficient amount of assets available to issue the
securities. This program is also free of material adverse change clauses, restrictive financial
covenants (for example, debt-to-equity limitations and minimum net worth requirements), and credit
rating triggers that could limit our ability to obtain funding. At June 30, 2008, we had
$3.1 billion of outstanding funding in this program.
Credit Facilities
Our credit facilities and asset-backed commercial paper lines were as follows on the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in billions)
|
|
Credit Facilities
|
|
|
|
|
|
|
|
|
Ford Credit bank lines
|
|
$
|
0.4
|
|
|
$
|
0.5
|
|
FCE bank lines
|
|
|
2.3
|
|
|
|
2.5
|
|
Utilized amounts
|
|
|
(0.8
|
)
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
Available credit facilities
|
|
$
|
1.9
|
|
|
$
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Commercial Paper Lines
|
|
|
|
|
|
|
|
|
FCAR asset-backed commercial paper lines
|
|
$
|
16.3
|
|
|
$
|
16.9
|
|
At July 1, 2008, we and our subsidiaries, including FCE, had $2.7 billion of contractually
committed unsecured credit facilities with financial institutions, of which $1.9 billion were
available for use. Of the lines available for use, 41% ($771 million) are committed through at
least June 30, 2010, including 33% ($611 million) which are committed through December 31, 2011.
Of the $2.7 billion, $359 million constitute Ford Credit bank lines (of which $70 million are
worldwide) and $2.3 billion are FCE bank lines (of which $2.2 billion are worldwide). Our
worldwide credit facilities may be used, at our option, by any of our direct or indirect majority
owned subsidiaries. Similarly, the FCE worldwide credit facilities may be used, at FCEs option,
by any of FCEs direct or indirect, majority owned subsidiaries. We or FCE, as the case may be,
will guarantee any such borrowings. All of the worldwide credit facilities are free of material
adverse change clauses, restrictive financial covenants (for example, debt-to-equity limitations
and minimum net worth requirements), and credit rating triggers that could limit our ability to
obtain funding.
In addition, at July 1, 2008, banks provided $16.3 billion of contractually committed
liquidity facilities to support our FCAR program. Of the contractually committed liquidity
facilities, 39% ($6.4 billion) are committed through June 29, 2012, and the remainder are committed
for a shorter period of time. Utilization of these facilities is subject to conditions specific to
the FCAR program and our having a sufficient amount of eligible assets for securitization. The
FCAR program must be supported by liquidity facilities equal to at least 100% of its outstanding
balance. At July 1, 2008, $16.1 billion of FCARs bank liquidity facilities were available to
support FCARs asset-backed commercial paper, subordinated debt or FCARs purchase of our
asset-backed securities, and the remaining FCAR bank liquidity facilities of $174 million were
available to support FCARs purchase of our asset-backed securities. At July 1, 2008, the
outstanding balance for the FCAR program was $14.3 billion.
Liquidity Risks
Refer to the Liquidity section of Item 7 of Part II of our 2007 10-K Report for a list of
factors that could affect our liquidity.
35
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
On-Balance Sheet Operating Lease Arrangements
Our lease securitizations do not satisfy the requirements for accounting sale treatment and,
therefore, the securitized assets and associated debt are included in our financial statements. At
June 30, 2008, the net investment in operating leases included in on-balance sheet securitizations
was $15.2 billion, which represents about 60% of our operating lease portfolio. These net
investments in operating leases are available only for payment of the debt or other obligations
issued or arising in the securitization transactions; they are not available to pay our other
obligations or the claims of our other creditors until the associated debt or other obligations are
satisfied.
In the North America Segment, we experienced a significant decline in the auction values of
our used full-size trucks and traditional sport utility vehicles for U.S. and Canadian operating
leases and recorded a pre-tax impairment charge of $2.1 billion, of which $1.3 billion is
attributable to the assets included in the private securitizations. We structured the enhancements
in our operating lease securitizations to protect securitization investors against residual and
credit losses. We expect that these enhancements will be sufficient to cover projected residual
losses that supported the impairment charge.
Off-Balance Sheet Arrangements
In the first half of 2008, we did not enter into any off-balance sheet arrangements
(off-balance sheet securitization transactions and whole-loan sale transactions), consistent with
our plan to fund securitizations through on-balance sheet transactions. Net proceeds from
off-balance sheet arrangements were about $700 million in the first half of 2007.
In the second quarter and first half of 2008, income related to off-balance sheet arrangements
reported in
Investment and other income related to sales of receivables
declined $54 million and
$94 million, respectively, compared with a year ago. The declines primarily reflected amortization
of the off-balance sheet securitization portfolio.
36
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Leverage
We use leverage, or the debt-to-equity ratio, to make various business decisions, including
establishing pricing for retail, wholesale and lease financing, and assessing our capital
structure. We refer to our shareholders interest as equity. We calculate leverage on a financial
statement basis and on a managed basis using the following formulas:
|
|
|
|
|
|
|
Financial
Statement
Leverage
|
|
=
|
|
Total Debt
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest in
|
|
|
|
|
|
|
|
Adjustments for
|
|
|
|
|
|
|
|
|
Securitized
Off-balance
|
|
|
|
Securitized
Off-balance
|
|
|
|
Cash,
Cash Equivalents
|
|
|
|
Hedge
Accounting
|
|
|
|
|
Total Debt
|
|
+
|
|
Sheet
|
|
-
|
|
Sheet
|
|
-
|
|
and Marketable
|
|
-
|
|
on Total Debt (b)
|
Managed Leverage
|
|
=
|
|
|
|
|
|
Receivables
|
|
|
|
Receivables
|
|
|
|
Securities (a)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
+
|
|
Minority Interest
|
|
-
|
|
Hedge
Accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
on Equity (b)
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|
|
|
|
|
|
|
|
|
(a)
|
|
Excludes marketable securities related to insurance activities.
|
|
|
(b)
|
|
Primarily related to market valuation adjustments from derivatives due to
movements in interest rates.
|
The following table shows the calculation of our financial statement leverage (in billions,
except for ratios):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
137.5
|
|
|
$
|
139.4
|
|
Total equity
|
|
|
12.3
|
|
|
|
13.4
|
|
Financial statement leverage (to 1)
|
|
|
11.2
|
|
|
|
10.4
|
|
The following table shows the calculation of our managed leverage (in billions, except for
ratios):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
137.5
|
|
|
$
|
139.4
|
|
Securitized off-balance sheet receivables outstanding
|
|
|
3.0
|
|
|
|
6.0
|
|
Retained interest in securitized off-balance sheet receivables
|
|
|
(0.4
|
)
|
|
|
(0.7
|
)
|
Adjustments for cash, cash equivalents, and marketable securities (a)
|
|
|
(19.6
|
)
|
|
|
(16.7
|
)
|
Adjustments for hedge accounting (b)
|
|
|
(0.1
|
)
|
|
|
0.0
|
|
|
|
|
|
|
|
|
Total adjusted debt
|
|
$
|
120.4
|
|
|
$
|
128.0
|
|
|
|
|
|
|
|
|
|
Total equity (including minority interest)
|
|
$
|
12.3
|
|
|
$
|
13.4
|
|
Adjustments for hedge accounting (b)
|
|
|
(0.2
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
Total adjusted equity
|
|
$
|
12.1
|
|
|
$
|
13.1
|
|
|
|
|
|
|
|
|
|
Managed leverage (to 1)
|
|
|
10.0
|
|
|
|
9.8
|
|
|
|
|
(a)
|
|
Excludes marketable securities related to insurance activities.
|
|
(b)
|
|
Primarily related to market valuation adjustments from derivatives
due to movements in interest rates.
|
We plan our managed leverage by considering prevailing market conditions and the risk
characteristics of our business. At June 30, 2008, our managed leverage was 10 to 1, compared with
9.8 to 1 at December 31, 2007. We did not pay any distributions in the second quarter of 2008.
37
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Accounting Standards Issued But Not Yet Adopted
We have not yet adopted SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133.
Refer to Accounting Standards Issued But Not
Yet Adopted section of Item 2 of our Quarterly Report on Form 10-Q for the period ended March 31,
2008 for additional information on this standard.
We have not yet adopted SFAS No. 141R,
Business Combinations,
or SFAS No. 160,
Noncontrolling
Interests in Consolidated Financial Statements an amendment of ARB No. 51.
Refer to Accounting
Standards Issued But Not Yet Adopted section of Item 7 of Part II of our 2007 10-K Report for
additional information on these standards.
Outlook
We expect to incur a pre-tax loss for 2008. The reduction expected in 2008 compared with 2007
primarily reflects the impact of the second quarter 2008 impairment charge to our North America
Segment operating lease portfolio, higher provision for credit losses, higher depreciation expense
for leased vehicles, lower volume, and higher net losses related to market valuation adjustments
from derivatives. We expect these factors to be offset partially by the non-recurrence of costs
associated with our North American business transformation initiative, reductions in other
operating costs, and higher financing margin. We expect a pre-tax loss for the second half of
2008, at about the same level as, or better than, our first half pre-tax loss, excluding the
impairment charge.
We previously planned to pay regular distributions in 2008, but given the present credit
market conditions and to maintain greater flexibility in the execution of our funding plan, we did
not reinstate these distributions in 2008. As a result of this decision, our second half 2008
profit expectation, and our expectation that year-end 2008 managed receivables will be in the range
of $130 billion to $135 billion, we anticipate our year-end managed leverage to be lower than 10 to
1. This is lower than our June 30, 2008 managed leverage and the 11.5 to 1 planned at the
beginning of 2008.
The recent significant reduction in auction values for used full-size trucks and traditional
sport utility vehicles, together with the present credit market conditions, have made leasing
vehicles less economical than in the past. As a result, we plan to reduce our lease originations
while still offering leasing to consumers who prefer this product.
We expect the funding structure required to fund $130 billion to $135 billion of managed
receivables to be the following (in billions, except for percentages).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
Funding Structure
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford Interest Advantage
|
|
$
|
4
|
|
|
|
|
|
|
|
5
|
|
Asset-backed commercial paper
|
|
|
12
|
|
|
|
|
|
|
|
15
|
|
Term asset-backed securities
|
|
|
55
|
|
|
|
|
|
|
|
60
|
|
Term debt and other
|
|
|
58
|
|
|
|
|
|
|
|
62
|
|
Equity
|
|
~ 12
|
|
Cash, cash equivalents and marketable securities*
|
|
|
(13
|
)
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
Total funding structure
|
|
$
|
130
|
|
|
|
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized funding as a percentage of managed receivables
|
|
|
52
|
|
|
|
|
|
|
|
54
|
%
|
|
|
|
*
|
|
Excludes marketable securities related to insurance activities.
|
38
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Cautionary Statement Regarding Forward Looking Statements
Statements included or incorporated by reference herein may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on expectations, forecasts and assumptions by our management
and involve a number of risks, uncertainties, and other factors that could cause actual results to
differ materially from those stated, including, without limitation:
Automotive Related:
|
|
|
Continued decline in Fords market share;
|
|
|
|
|
Continued or increased price competition for Ford vehicles resulting from industry
overcapacity, currency fluctuations or other factors;
|
|
|
|
|
A further increase in or acceleration of market shift away from sales of trucks, sport
utility vehicles, or other more profitable vehicles, particularly in the United States;
|
|
|
|
|
A significant decline in industry sales and our financing of those sales, particularly
in the United States, Europe, or South America, resulting from slowing economic growth,
geo-political events or other factors;
|
|
|
|
|
Lower-than-anticipated market acceptance of new or existing Ford products;
|
|
|
|
|
Continued or increased high prices for or reduced availability of fuel;
|
|
|
|
|
Adverse effects from the bankruptcy or insolvency of, change in ownership or control
of, or alliances entered into by a major competitor;
|
|
|
|
|
Economic distress of suppliers that has in the past or may in the future require Ford
to provide financial support or take other measures to ensure supplies of components or
materials;
|
|
|
|
|
Work stoppages at Ford or supplier facilities or other interruptions of supplies;
|
|
|
|
|
Single-source supply of components or materials;
|
|
|
|
|
Inability to implement the Retiree Health Care Settlement Agreement with the UAW to
fund and discharge retiree health care obligations because of failure to obtain court
approval or otherwise;
|
|
|
|
|
The discovery of defects in Ford vehicles resulting in delays in new model launches,
recall campaigns or increased warranty costs;
|
|
|
|
|
Increased safety, emissions (e.g., CO2), fuel economy or other regulation resulting in
higher costs, cash expenditures and/or sales restrictions;
|
|
|
|
|
Unusual or significant litigation or governmental investigations arising out of alleged
defects in Ford products or otherwise;
|
|
|
|
|
A change in Fords requirements for parts or materials where it has entered into
long-term supply arrangements that commit it to purchase minimum or fixed quantities of
certain parts or materials, or to pay a minimum amount to the seller (take-or-pay
contracts);
|
|
|
|
|
Adverse effects on our results from a decrease in or cessation of government incentives;
|
|
|
|
|
Adverse effects on Fords operations resulting from geo-political or other events;
|
|
|
|
|
Substantial negative operating-related cash flows for the near- to medium-term
affecting Fords ability to meet its obligations, invest in its business or refinance its
debt;
|
|
|
|
|
Substantial levels of indebtedness adversely affecting Fords financial condition or
preventing Ford from fulfilling its debt obligations (which may grow because Ford is able
to incur substantially more debt, including additional secured debt);
|
Ford Credit Related:
|
|
|
Inability to access debt or securitization markets around the world at competitive
rates or in sufficient amounts due to additional credit rating downgrades, market
volatility, market disruptions or otherwise;
|
|
|
|
|
Higher-than-expected credit losses;
|
|
|
|
|
Increased competition from banks or other financial institutions seeking to increase
their share of financing Ford vehicles;
|
|
|
|
|
Collection and servicing problems related to our finance receivables and net investment
in operating leases;
|
|
|
|
|
Lower-than-anticipated residual values or higher-than-expected return volumes for
leased vehicles;
|
|
|
|
|
New or increased credit, consumer or data protection or other regulations resulting in
higher costs and/or additional financing restrictions;
|
|
|
|
|
Changes in Fords operations or changes in Fords marketing programs could result in a
decline in our financing volumes;
|
39
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
General:
|
|
|
Labor or other constraints on Fords or our ability to restructure its or our business;
|
|
|
|
|
Substantial pension and postretirement healthcare and life insurance liabilities
impairing Fords or our liquidity or financial condition;
|
|
|
|
|
Worse-than-assumed economic and demographic experience for postretirement benefit plans
(e.g., discount rates, investment returns, and health care cost trends);
|
|
|
|
|
Currency or commodity price fluctuations; and
|
|
|
|
|
Changes in interest rates.
|
We cannot be certain that any expectations, forecasts or assumptions made by management in
preparing these forward-looking statements will prove accurate, or that any projections will be
realized. It is to be expected that there may be differences between projected and actual results.
Our forward-looking statements speak only as of the date of their initial issuance, and we do not
undertake any obligation to update or revise publicly any forward-looking statements, whether as a
result of new information, future events or otherwise. For additional discussion of these risk
factors, see Item 1A of Part I of our 2007 10-K Report and Item 1A of Part I of Fords 2007 10-K
Report.
Other Financial Information
PricewaterhouseCoopers LLP (PwC) has not audited the interim financial information included
in this 10-Q Report. In reviewing such information, PwC has applied limited procedures in
accordance with professional standards for reviews of interim financial information. Accordingly,
you should restrict your reliance on their reports on such information. PwC is not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their reports on the interim
financial information because such reports do not constitute reports or parts of the
registration statements prepared or certified by PwC within the meaning of Sections 7 and 11 of the
Securities Act of 1933.
40
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In our 2007 10-K Report, we discuss in greater detail our market risk, counter-party risk,
credit risk, residual risk, liquidity risk and operating risk. To provide a quantitative measure
of the sensitivity of our pre-tax cash flow to changes in interest rates, we use interest rate
scenarios that assume a hypothetical, instantaneous increase or decrease in interest rates of 100
basis points (or 1%) across all maturities, as well as a base case that assumes that interest rates
remain constant at existing levels. These interest rate scenarios are purely hypothetical and do
not represent our view of future interest rate movements. The differences in pre-tax cash flow
between these scenarios and the base case over a twelve-month period represent an estimate of the
sensitivity of our pre-tax cash flow. Under this model, we estimate that at June 30, 2008, all
else constant, such an increase in interest rates would reduce our pre-tax cash flow by $24 million
over the next twelve months, compared with $16 million at December 31, 2007. The sensitivity
analysis presented above assumes a one-percentage point interest rate change to the yield curve
that is both instantaneous and parallel. In reality, interest rate changes are rarely
instantaneous or parallel and rates could move more or less than the one percentage point assumed
in our analysis. As a result, the actual impact to pre-tax cash flow could be higher or lower than
the results detailed above.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Michael E. Bannister, our Chairman of the Board and Chief Executive Officer (CEO), and
Kenneth R. Kent, our Vice Chairman, Chief Financial Officer (CFO) and Treasurer, have performed
an evaluation of the Companys disclosure controls and procedures, as that term is defined in Rule
13a-15 (e) of the Securities Exchange Act of 1934, as amended (the Exchange Act), as of June 30,
2008 and each has concluded that such disclosure controls and procedures are effective to ensure
that information required to be disclosed in our periodic reports filed under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified by the SECs rules
and forms, and such information is accumulated and communicated to management as appropriate to
allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
During the second quarter of 2008, we completed the re-sourcing from one bank to another for our
international cash management services.
41
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On March 25, 2008, Ford signed a sale and purchase agreement with Tata Motors Limited (Tata)
for the sale of its Jaguar and Land Rover operations. The sale was completed on June 2, 2008. As
of June 30, 2008, the combined Jaguar and Land Rover portion of our portfolio was about 6%
globally, which included about 5% in North America and about 12% in Europe. For a transitional
period of up to 12 months from the sale closing date, we will continue to provide financing for
Jaguar and Land Rover dealers and customers. The length of the transition will vary by market.
On June 30, 2008, we completed the creation of a joint venture finance company, Forso Nordic
AB (Forso) and transferred the majority of our business and assets from our Nordic operations
(including Denmark, Finland, Norway, and Sweden) into the joint venture. Forso will support the
sale of Ford vehicles in these markets. We report our remaining ownership in the joint venture as
an equity method investment.
Additional information about Ford can be found in Fords Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2008, filed separately with the SEC and included as an exhibit to
this Report (without Financial Statements or Exhibits).
ITEM 6. EXHIBITS
Exhibits: please refer to the Exhibit Index on page 45.
Instruments defining the rights of holders of certain issues of long-term debt of Ford Credit
have not been filed as exhibits to this Report because the authorized principal amount of any one
of such issues does not exceed 10% of the total assets of Ford Credit. Ford Credit will furnish a
copy of each such instrument to the SEC upon request.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
Ford Motor Credit Company LLC has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
|
|
FORD MOTOR CREDIT COMPANY LLC
|
|
|
|
|
|
|
|
By:
|
|
/s/ Kenneth R. Kent
Kenneth R. Kent
|
|
|
|
|
Vice Chairman, Chief Financial Officer and Treasurer
|
|
|
Date: August 8, 2008
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
Ford Motor Credit Company LLC:
We have reviewed the accompanying consolidated balance sheet of Ford Motor Credit Company LLC and
its subsidiaries (the Company) as of June 30, 2008 and the related consolidated statement of
income for each of the three-month and six-month periods ended June 30, 2008 and 2007, and the
consolidated statement of cash flows for the six-month periods ended June 30, 2008 and 2007. These
interim financial statements are the responsibility of the Companys management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the objective of which
is the expression of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the
accompanying consolidated interim financial statements for them to be in conformity with accounting
principles generally accepted in the United States of America.
We previously audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheet as of December 31, 2007, and the related
consolidated statements of income, of shareholders interest/equity, and of cash flows for the year
then ended (not presented herein), and in our report dated February 27, 2008 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion, the information
set forth in the accompanying consolidated balance sheet as of December 31, 2007 is fairly stated
in all material respects in relation to the consolidated balance sheet from which it has been
derived.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
August 8, 2008
44
FORD MOTOR CREDIT COMPANY LLC
EXHIBIT INDEX
|
|
|
|
|
Designation
|
|
Description
|
|
Method of Filing
|
|
|
|
|
|
Exhibit 12
|
|
Ford Motor Credit Company LLC
and Subsidiaries
Calculation of Ratio of
Earnings to Fixed Charges
|
|
Filed with this Report
|
|
|
|
|
|
Exhibit 15
|
|
Letter of
PricewaterhouseCoopers LLP,
dated August 8, 2008, relating
to Unaudited Interim Financial
Information
|
|
Filed with this Report
|
|
|
|
|
|
Exhibit 31.1
|
|
Rule 15d-14(a) Certification of
CEO
|
|
Filed with this Report
|
|
|
|
|
|
Exhibit 31.2
|
|
Rule 15d-14(a) Certification of
CFO
|
|
Filed with this Report
|
|
|
|
|
|
Exhibit 32.1
|
|
Section 1350 Certification of CEO
|
|
Furnished with this Report
|
|
|
|
|
|
Exhibit 32.2
|
|
Section 1350 Certification of CFO
|
|
Furnished with this Report
|
|
|
|
|
|
Exhibit 99
|
|
Items 2 4 of Part I and Items
1, 2, 3 and 5 of Part II of Ford
Motor Companys Quarterly Report
on Form 10-Q for the quarterly
period ended June 30, 2008
|
|
Incorporated herein
by reference to Ford
Motor Companys
Quarterly Report on
Form 10-Q for the
quarter ended
June 30, 2008. File
No. 1-3950.
|
45
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