UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark One)
[X]
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
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|
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
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For the quarterly period ended September 30, 2010
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OR
[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
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|
|
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For the transition period from
___________ to
________________
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Commission file number 1-6368
Ford Motor Credit Company LLC
(Exact name of registrant as specified in its charter)
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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Registrant’s 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 has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
o
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
þ
(Do not check if a smaller reporting company)
|
Smaller reporting company
o
|
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the
Exchange Act).
o
Yes
þ
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 58
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Periods Ended September 30, 2010 and 2009
(in millions)
|
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Third Quarter
|
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Nine Months
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|
|
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2010
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|
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2009
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|
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2010
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|
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2009
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Financing revenue
|
|
|
|
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|
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|
|
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Operating leases
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$
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741
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$
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1,168
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$
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2,593
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$
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3,854
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Retail
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561
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750
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1,778
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2,266
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Interest supplements and other support costs earned
from affiliated companies
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789
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917
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2,514
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2,813
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Wholesale
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220
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188
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661
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709
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Other
|
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15
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18
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47
|
|
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60
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Total financing revenue
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2,326
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3,041
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7,593
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9,702
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Depreciation on vehicles subject to operating leases
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(404
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)
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(842
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)
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(1,520
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)
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(3,200
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)
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Interest expense
|
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(1,025
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)
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(1,259
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)
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|
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(3,238
|
)
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|
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(3,969
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)
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Net financing margin
|
|
|
897
|
|
|
|
940
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2,835
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|
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2,533
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Other revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Insurance premiums earned, net
|
|
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25
|
|
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20
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|
75
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|
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76
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Other income, net (Note 13)
|
|
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75
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144
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|
|
|
210
|
|
|
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574
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Total financing margin and other revenue
|
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997
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1,104
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3,120
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3,183
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Expenses
|
|
|
|
|
|
|
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|
|
|
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Operating expenses
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|
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271
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|
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|
306
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|
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851
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956
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Provision for credit losses (Note 4)
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(53
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)
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111
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|
|
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(255
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)
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893
|
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Insurance expenses
|
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13
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|
|
|
10
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|
|
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42
|
|
|
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47
|
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Total expenses
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|
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231
|
|
|
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427
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|
|
|
638
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1,896
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Income before income taxes
|
|
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766
|
|
|
|
677
|
|
|
|
2,482
|
|
|
|
1,287
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Provision for income taxes
|
|
|
269
|
|
|
|
250
|
|
|
|
901
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|
|
|
462
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Income from continuing operations
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497
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|
|
|
427
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|
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1,581
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|
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825
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Gain on disposal of discontinued operations (Note 12)
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—
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—
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—
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2
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Net income
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$
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497
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|
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$
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427
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|
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$
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1,581
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|
|
$
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827
|
|
The accompanying notes are an integral part of the financial statements.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
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September 30,
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|
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December 31,
|
|
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2010
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|
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2009
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ASSETS
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|
|
|
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Cash and cash equivalents
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$
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8,763
|
|
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$
|
10,882
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Marketable securities
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11,537
|
|
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6,864
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Finance receivables, net (Note 2)
|
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72,102
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|
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77,968
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Net investment in operating leases (Note 3)
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10,461
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|
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14,578
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|
Notes and accounts receivable from affiliated companies
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|
977
|
|
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1,090
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Derivative financial instruments (Note 11)
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1,683
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|
|
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1,862
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Other assets (Note 7)
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3,096
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|
|
|
4,100
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Total assets
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$
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108,619
|
|
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$
|
117,344
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|
|
|
|
|
|
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LIABILITIES AND SHAREHOLDER’S INTEREST
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|
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Liabilities
|
|
|
|
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|
|
|
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Accounts payable
|
|
|
|
|
|
|
|
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Customer deposits, dealer reserves and other
|
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$
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1,266
|
|
|
$
|
1,082
|
|
Affiliated companies
|
|
|
1,478
|
|
|
|
1,145
|
|
Total accounts payable
|
|
|
2,744
|
|
|
|
2,227
|
|
Debt (Note 8)
|
|
|
88,473
|
|
|
|
96,333
|
|
Deferred income taxes
|
|
|
1,760
|
|
|
|
1,816
|
|
Derivative financial instruments (Note 11)
|
|
|
662
|
|
|
|
1,179
|
|
Other liabilities and deferred income (Note 7)
|
|
|
4,047
|
|
|
|
4,809
|
|
Total liabilities
|
|
|
97,686
|
|
|
|
106,364
|
|
|
|
|
|
|
|
|
|
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Shareholder’s interest
|
|
|
|
|
|
|
|
|
Shareholder’s interest
|
|
|
5,274
|
|
|
|
5,149
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|
Accumulated other comprehensive income
|
|
|
799
|
|
|
|
1,052
|
|
Retained earnings (Note 9)
|
|
|
4,860
|
|
|
|
4,779
|
|
Total shareholder’s interest
|
|
|
10,933
|
|
|
|
10,980
|
|
Total liabilities and shareholder’s interest
|
|
$
|
108,619
|
|
|
$
|
117,344
|
|
The following table includes assets to be used to settle the liabilities of the consolidated variable interest entities (“VIEs”). These assets and liabilities are included in the consolidated balance sheet above. See Notes 5 and 6 for additional information on our VIEs:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Cash and cash equivalents
|
|
$
|
4,385
|
|
|
$
|
4,895
|
|
Finance receivables, net
|
|
|
52,827
|
|
|
|
57,353
|
|
Net investment in operating leases
|
|
|
6,783
|
|
|
|
10,246
|
|
Derivative financial instruments
—
assets
|
|
|
24
|
|
|
|
55
|
|
Debt
|
|
|
43,203
|
|
|
|
46,153
|
|
Derivative financial instruments
—
liabilities
|
|
|
327
|
|
|
|
528
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Periods Ended September 30, 2010 and 2009
(in millions)
|
|
Third Quarter
|
|
|
Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net income
|
|
$
|
497
|
|
|
$
|
427
|
|
|
$
|
1,581
|
|
|
$
|
827
|
|
Other comprehensive income/(loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (a)
|
|
|
413
|
|
|
|
186
|
|
|
|
(253
|
)
|
|
|
585
|
|
Change in value of retained interests in securitized assets
|
|
|
0
|
|
|
|
1
|
|
|
|
0
|
|
|
|
(1
|
)
|
Total other comprehensive income/(loss)
|
|
|
413
|
|
|
|
187
|
|
|
|
(253
|
)
|
|
|
584
|
|
Comprehensive income
|
|
$
|
910
|
|
|
$
|
614
|
|
|
$
|
1,328
|
|
|
$
|
1,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded a $100 million and a $125 million out-of-period adjustment during the third quarter of 2010 and the first nine months of 2010, respectively, which decreased
Accumulated other comprehensive income
(foreign currency translation) and increased
Shareholder’s interest
. This adjustment did not impact our
Total shareholder’s interest
on our balance sheet. The impact on previously issued annual and interim financial statements was not material.
|
The accompanying notes are an integral part of the financial statements.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Periods Ended September 30, 2010 and 2009
(in millions)
|
|
Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income
|
|
$
|
1,581
|
|
|
$
|
827
|
|
Adjustments to reconcile net income to net cash provided by operations
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
(255
|
)
|
|
|
893
|
|
Depreciation and amortization
|
|
|
1,813
|
|
|
|
3,667
|
|
Amortization of upfront interest supplements
|
|
|
(1,347
|
)
|
|
|
(1,321
|
)
|
Net change in deferred income taxes
|
|
|
(23
|
)
|
|
|
(675
|
)
|
Net change in other assets
|
|
|
1,608
|
|
|
|
2,091
|
|
Net change in other liabilities
|
|
|
431
|
|
|
|
251
|
|
All other operating activities
|
|
|
(267
|
)
|
|
|
(704
|
)
|
Net cash provided by operating activities
|
|
|
3,541
|
|
|
|
5,029
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of finance receivables (other than wholesale)
|
|
|
(17,195
|
)
|
|
|
(16,943
|
)
|
Collections of finance receivables (other than wholesale)
|
|
|
21,984
|
|
|
|
24,281
|
|
Purchases of operating lease vehicles
|
|
|
(3,790
|
)
|
|
|
(2,344
|
)
|
Liquidations of operating lease vehicles
|
|
|
6,493
|
|
|
|
5,798
|
|
Net change in wholesale receivables
|
|
|
747
|
|
|
|
9,687
|
|
Net change in notes receivable from affiliated companies
|
|
|
(29
|
)
|
|
|
161
|
|
Purchases of marketable securities
|
|
|
(38,026
|
)
|
|
|
(22,082
|
)
|
Proceeds from sales and maturities of marketable securities
|
|
|
33,415
|
|
|
|
21,112
|
|
Proceeds from sales of businesses
|
|
|
—
|
|
|
|
168
|
|
Settlements of derivatives
|
|
|
42
|
|
|
|
479
|
|
All other investing activities
|
|
|
23
|
|
|
|
54
|
|
Net cash provided by investing activities
|
|
|
3,664
|
|
|
|
20,371
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuances of long-term debt
|
|
|
23,399
|
|
|
|
23,904
|
|
Principal payments on long-term debt
|
|
|
(30,115
|
)
|
|
|
(42,501
|
)
|
Change in short-term debt, net
|
|
|
(814
|
)
|
|
|
(5,666
|
)
|
Cash distributions (a)
|
|
|
(1,500
|
)
|
|
|
(400
|
)
|
All other financing activities
|
|
|
(165
|
)
|
|
|
(549
|
)
|
Net cash used in financing activities
|
|
|
(9,195
|
)
|
|
|
(25,212
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(129
|
)
|
|
|
265
|
|
Cumulative correction of a prior period error (b)
|
|
|
—
|
|
|
|
(630
|
)
|
|
|
|
|
|
|
|
|
|
Total cash flows from operations
|
|
|
(2,119
|
)
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
$
|
10,882
|
|
|
$
|
15,473
|
|
Change in cash and cash equivalents
|
|
|
(2,119
|
)
|
|
|
(177
|
)
|
Cash and cash equivalents, end of period
|
|
$
|
8,763
|
|
|
$
|
15,296
|
|
(a)
|
See Note 9 for information regarding $1.1 billion of non-cash distributions in the first quarter of 2009.
|
(b)
|
In the first quarter of 2009, we recorded a $630 million cumulative adjustment to correct for the overstatement of cash and cash equivalents and certain accounts payable that originated in prior periods. The impact on previously issued annual and interim financial statements was not material.
|
The accompanying notes are an integral part of the financial statements.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
Table of Contents
Note
|
|
Page
|
Note 1
|
Accounting Policies
|
6
|
Note 2
|
Finance Receivables
|
7
|
Note 3
|
Net Investment in Operating Leases
|
8
|
Note 4
|
Allowance for Credit Losses
|
9
|
Note 5
|
Transfers of Receivables
|
9
|
Note 6
|
Variable Interest Entities
|
13
|
Note 7
|
Other Assets and Other Liabilities and Deferred Income
|
15
|
Note 8
|
Debt
|
16
|
Note 9
|
Retained Earnings
|
17
|
Note 10
|
Fair Value Measurements
|
18
|
Note 11
|
Derivative Financial Instruments and Hedging Activities
|
25
|
Note 12
|
Divestitures and Other Actions
|
27
|
Note 13
|
Other Income
|
28
|
Note 14
|
Employee Separation Actions
|
29
|
Note 15
|
Segment Information
|
30
|
Note 16
|
Commitments and Contingencies
|
32
|
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 condition for interim periods for Ford Motor Credit Company LLC, its consolidated subsidiaries and consolidated 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, 2009 (“2009 10-K Report”). We are an indirect, wholly owned subsidiary of Ford Motor Company (“Ford”).
We reclassified certain prior year amounts in our consolidated financial statements to conform to current year presentation.
Interest Supplements and Other Support Costs Earned from Affiliated Companies
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 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. The amount of unearned interest supplements for finance receivables was about $2 billion and $1.9 billion at September 30, 2010 and December 31, 2009, respectively. 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.
The amount of unearned interest supplements and residual support payments for net investment in operating leases was $878 million and $1.1 billion at September 30, 2010 and December 31, 2009, respectively.
At September 30, 2010, in the United States and Canada, Ford is obligated to pay us $381 million of interest supplements (including supplements related to sold receivables)
and $59 million of residual value support over the terms of the related finance contracts, compared with about $1 billion of interest supplements and $180 million of residual value support at December 31, 2009, in each case for contracts purchased prior to January 1, 2008. The unpaid interest supplements and residual value support obligations on these contracts will continue to decline as the contracts liquidate.
Provision for Income Taxes
The provision for income taxes is computed by applying our estimated annual effective tax rate to year-to-date income before taxes.
Accounting Standards Issued Not Yet Adopted
In July 2010, the Financial Accounting Standards Board (“FASB”) issued a new standard requiring expanded disclosures about the credit quality of financing receivables and the allowance for credit losses. The new standard requires disaggregation of disclosures by portfolio segment or by class of financing receivable, and provides additional implementation guidance for determining the level of disaggregation of information. The standard also requires new disclosures on credit quality indicators, past due information, and modifications of financing receivables. The standard is effective for us as of December 31, 2010.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 2. FINANCE RECEIVABLES
We offer a wide variety of automotive financing products to and through automotive dealers throughout the world. Our finance receivables fall into three categories:
|
•
|
Retail financing
—
purchasing retail installment sale and direct financing lease contracts from dealers for new and used vehicles with retail customers, daily rental companies, government entities, and fleet customers;
|
|
•
|
Wholesale financing
—
making loans to dealers to finance the purchase of vehicle inventory, also known as floorplan financing; and
|
|
•
|
Other financing
—
making loans to dealers for improvements to dealership facilities, working capital, and the purchase and financing of dealership real estate. Other financing also includes purchasing certain receivables generated by Ford, primarily in connection with the delivery of vehicle inventories from Ford, the sale of parts and accessories by Ford to dealers and other receivables generated by Ford.
|
Finance receivables, net
Net finance receivables at September 30, 2010 and December 31, 2009 were as follows (in millions):
|
|
September 30,
2010
|
|
|
December 31,
2009
|
|
Retail (including direct financing leases)
|
|
$
|
51,110
|
|
|
$
|
56,308
|
|
Wholesale
|
|
|
21,449
|
|
|
|
22,453
|
|
Other
|
|
|
2,408
|
|
|
|
2,474
|
|
Total finance receivables, net of unearned income (a)(b)
|
|
|
74,967
|
|
|
|
81,235
|
|
Less: Unearned interest supplements
|
|
|
(1,997
|
)
|
|
|
(1,932
|
)
|
Less: Allowance for credit losses
|
|
|
(868
|
)
|
|
|
(1,335
|
)
|
Finance receivables, net
|
|
$
|
72,102
|
|
|
$
|
77,968
|
|
|
|
|
|
|
|
|
|
|
Net finance receivables subject to fair value (c)
|
|
$
|
70,415
|
|
|
$
|
75,584
|
|
Fair value
|
|
|
72,333
|
|
|
|
76,807
|
|
(a)
|
At September 30, 2010 and December 31, 2009, includes $570 million and $647 million, 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 Ford’s balance sheet.
|
(b)
|
At September 30, 2010 and December 31, 2009, includes finance receivables of $57.5 billion and $64.4 billion, respectively, that have been sold for legal purposes in securitization transactions but continue to be included in our consolidated financial statements, of which $108 million is reported as inventory by Ford at September 30, 2010. The receivables are available only for payment of the debt and 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. We hold the right to the excess cash flows not needed to pay the debt and other obligations issued or arising in each of these securitization transactions. Refer to Note 5 for additional information.
|
(c)
|
At September 30, 2010 and December 31, 2009, excludes $1.7 billion and $2.4 billion, respectively, of certain receivables (primarily direct financing leases) that are not subject to fair value disclosure requirements. See Note 10 for fair value methodology.
|
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
Net investment in operating leases consists primarily of lease contracts for new and used vehicles with retail customers, daily rental companies, government entities and fleet customers with terms of 60 months or less.
Net investment in operating leases
Net investment in operating leases at September 30, 2010 and December 31, 2009 were as follows (in millions):
|
|
September 30,
2010
|
|
|
December 31,
2009
|
|
Vehicles, at cost, including initial direct costs
|
|
$
|
15,124
|
|
|
$
|
20,983
|
|
Less: Accumulated depreciation
|
|
|
(4,558
|
)
|
|
|
(6,191
|
)
|
Net investment in operating leases before
allowance for credit losses (a)
|
|
|
10,566
|
|
|
|
14,792
|
|
Less: Allowance for credit losses
|
|
|
(105
|
)
|
|
|
(214
|
)
|
Net investment in operating leases
|
|
$
|
10,461
|
|
|
$
|
14,578
|
|
(a)
|
At September 30, 2010 and December 31, 2009, includes net investment in operating leases of about $6.8 billion and $10.4 billion, respectively, that have been included in securitization transactions but continue to be included in our consolidated financial statements. These net investment in operating leases are available only for payment of the debt and 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. Refer to Note 5 for additional information.
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 4. ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is our estimate of the probable credit losses inherent in finance receivables and operating leases at the date of the 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. Because credit losses can vary substantially over time, estimating credit losses requires a number of assumptions about matters that are uncertain.
Allowance for Credit Losses
Following is an analysis of the allowance for credit losses related to finance receivables, investment in direct financing leases, and investment in operating leases for the periods ended September 30 (in millions):
|
|
Third Quarter
|
|
|
Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Balance, beginning of period
|
|
$
|
1,104
|
|
|
$
|
1,846
|
|
|
$
|
1,549
|
|
|
$
|
1,668
|
|
Provision for credit losses
|
|
|
(53
|
)
|
|
|
111
|
|
|
|
(255
|
)
|
|
|
893
|
|
Total charge-offs and recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(189
|
)
|
|
|
(346
|
)
|
|
|
(637
|
)
|
|
|
(1,172
|
)
|
Recoveries
|
|
|
94
|
|
|
|
106
|
|
|
|
323
|
|
|
|
315
|
|
Net charge-offs
|
|
|
(95
|
)
|
|
|
(240
|
)
|
|
|
(314
|
)
|
|
|
(857
|
)
|
Other changes, principally amounts related to translation adjustments and finance receivables sold
|
|
|
17
|
|
|
|
(2
|
)
|
|
|
(7
|
)
|
|
|
11
|
|
Balance, end of period
|
|
$
|
973
|
|
|
$
|
1,715
|
|
|
$
|
973
|
|
|
$
|
1,715
|
|
The allowance for credit losses is estimated using a combination of models and management judgment, and is based on such factors as portfolio quality, historical loss performance, and receivable levels. At September 30, 2010, our allowance for credit losses includes about $10 million which was based on management’s judgment regarding higher retail loss assumptions in Spain compared with historical trends used in our models. At September 30, 2009, our allowance for credit losses included about $260 million which was based on management’s judgment regarding higher retail installment and lease repossession assumptions and higher wholesale and dealer loan default assumptions.
NOTE 5. TRANSFERS OF RECEIVABLES
We securitize finance receivables and net investments in operating leases through a variety of programs, utilizing amortizing, variable funding and revolving structures. We also sell finance receivables in structured financing transactions. Due to the similarities between securitization and structured financing, we refer to structured financings as securitization transactions. Our securitization programs are targeted to many different investors in both public and private transactions in capital markets worldwide.
We adopted the FASB’s new accounting standard related to transfers of financial assets on January 1, 2010. The standard requires greater transparency about transfers of financial assets and a company’s continuing involvement in the transferred financial assets. The standard also removes the concept of a qualifying special-purpose entity from GAAP and changes the requirements for derecognizing financial assets. This new standard did not have a material impact on our financial condition, results of operations and financial statement disclosures.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 5. TRANSFERS OF RECEIVABLES (Continued)
On-Balance Sheet Securitization Transactions
We transfer finance receivables and net investments in operating leases in securitization transactions to fund operations and to maintain liquidity. The majority of our securitization transactions are recorded as asset-backed debt and the associated assets are not derecognized and continue to be included in our financial statements.
The finance receivables and net investment in operating leases that have been included in securitization transactions are only available for payment of the debt and other obligations issued or arising in the securitization transactions. Cash and cash equivalents and marketable securities balances relating to securitization transactions are used only to support the on-balance sheet securitization transactions. We hold the right to the excess cash flows not needed to pay the debt and other obligations issued or arising in each of these securitization transactions. The asset-backed debt has been issued either directly by us or by consolidated entities.
Most of these securitization transactions utilize VIEs. Refer to Note 6 for more information concerning VIEs. The following table shows the assets and the liabilities related to our securitization transactions that were included in our financial statements at September 30, 2010 and December 31, 2009 (in billions):
|
|
September 30, 2010
|
|
|
|
Cash and Cash
Equivalents and
Marketable
Securities (a)
|
|
|
Finance Receivables & Net Investment in Operating Leases (b)
|
|
|
Related Debt
|
|
|
|
Before Allowance
for Credit Losses
|
|
|
Allowance for
Credit Losses
|
|
|
After Allowance
for Credit Losses
|
|
VIE (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
3.1
|
|
|
$
|
37.3
|
|
|
$
|
0.5
|
|
|
$
|
36.8
|
|
|
$
|
30.0
|
|
Wholesale
|
|
|
0.4
|
|
|
|
16.0
|
|
|
|
0.0
|
|
|
|
16.0
|
|
|
|
9.5
|
|
Finance receivables
|
|
|
3.5
|
|
|
|
53.3
|
|
|
|
0.5
|
|
|
|
52.8
|
|
|
|
39.5
|
|
Net investment in operating leases
|
|
|
0.9
|
|
|
|
6.8
|
|
|
|
0.0
|
|
|
|
6.8
|
|
|
|
3.7
|
|
Total
|
|
$
|
4.4
|
|
|
$
|
60.1
|
|
|
$
|
0.5
|
|
|
$
|
59.6
|
|
|
$
|
43.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-VIE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
0.3
|
|
|
$
|
2.0
|
|
|
$
|
0.0
|
|
|
$
|
2.0
|
|
|
$
|
2.2
|
|
Wholesale
|
|
|
0.0
|
|
|
|
2.2
|
|
|
|
0.0
|
|
|
|
2.2
|
|
|
|
1.6
|
|
Finance receivables
|
|
|
0.3
|
|
|
|
4.2
|
|
|
|
0.0
|
|
|
|
4.2
|
|
|
|
3.8
|
|
Net investment in operating leases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total (d)
|
|
$
|
0.3
|
|
|
$
|
4.2
|
|
|
$
|
0.0
|
|
|
$
|
4.2
|
|
|
$
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitization transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
3.4
|
|
|
$
|
39.3
|
|
|
$
|
0.5
|
|
|
$
|
38.8
|
|
|
$
|
32.2
|
|
Wholesale
|
|
|
0.4
|
|
|
|
18.2
|
|
|
|
0.0
|
|
|
|
18.2
|
|
|
|
11.1
|
|
Finance receivables
|
|
|
3.8
|
|
|
|
57.5
|
|
|
|
0.5
|
|
|
|
57.0
|
|
|
|
43.3
|
|
Net investment in operating leases
|
|
|
0.9
|
|
|
|
6.8
|
|
|
|
0.0
|
|
|
|
6.8
|
|
|
|
3.7
|
|
Total
|
|
$
|
4.7
|
|
|
$
|
64.3
|
|
|
$
|
0.5
|
|
|
$
|
63.8
|
|
|
$
|
47.0
|
|
(a)
|
Includes marketable securities totaling $116 million which are pledged as collateral in a funding arrangement with the European Central Bank (“ECB”).
|
(b)
|
Unearned interest supplements are excluded from securitization transactions.
|
(c)
|
Includes assets to be used to settle the liabilities of the consolidated VIEs.
|
(d)
|
Certain debt issued by the VIEs to affiliated companies served as collateral for accessing the ECB open market operations program. This external funding of $427 million at September 30, 2010 was not reflected as debt of the VIEs and is reflected as non-VIE debt above. The finance receivables backing this external funding are reflected in VIE finance receivables.
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 5. TRANSFERS OF RECEIVABLES (Continued)
|
|
December 31, 2009
|
|
|
|
|
|
|
Finance Receivables & Net Investment in Operating Leases (a)
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
Before Allowance for Credit Losses
|
|
|
Allowance for Credit Losses
|
|
|
After Allowance for Credit Losses
|
|
|
Related Debt
|
|
VIE (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
3.1
|
|
|
$
|
41.7
|
|
|
$
|
0.8
|
|
|
$
|
40.9
|
|
|
$
|
31.2
|
|
Wholesale
|
|
|
0.5
|
|
|
|
16.5
|
|
|
|
0.0
|
|
|
|
16.5
|
|
|
|
8.4
|
|
Finance receivables
|
|
|
3.6
|
|
|
|
58.2
|
|
|
|
0.8
|
|
|
|
57.4
|
|
|
|
39.6
|
|
Net investment in operating leases
|
|
|
1.3
|
|
|
|
10.4
|
|
|
|
0.2
|
|
|
|
10.2
|
|
|
|
6.6
|
|
Total
|
|
$
|
4.9
|
|
|
$
|
68.6
|
|
|
$
|
1.0
|
|
|
$
|
67.6
|
|
|
$
|
46.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-VIE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
0.3
|
|
|
$
|
3.2
|
|
|
$
|
0.1
|
|
|
$
|
3.1
|
|
|
$
|
4.5
|
|
Wholesale
|
|
|
0.0
|
|
|
|
3.0
|
|
|
|
0.0
|
|
|
|
3.0
|
|
|
|
2.2
|
|
Finance receivables
|
|
|
0.3
|
|
|
|
6.2
|
|
|
|
0.1
|
|
|
|
6.1
|
|
|
|
6.7
|
|
Net investment in operating leases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total (c)
|
|
$
|
0.3
|
|
|
$
|
6.2
|
|
|
$
|
0.1
|
|
|
$
|
6.1
|
|
|
$
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitization transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
3.4
|
|
|
$
|
44.9
|
|
|
$
|
0.9
|
|
|
$
|
44.0
|
|
|
$
|
35.7
|
|
Wholesale
|
|
|
0.5
|
|
|
|
19.5
|
|
|
|
0.0
|
|
|
|
19.5
|
|
|
|
10.6
|
|
Finance receivables
|
|
|
3.9
|
|
|
|
64.4
|
|
|
|
0.9
|
|
|
|
63.5
|
|
|
|
46.3
|
|
Net investment in operating leases
|
|
|
1.3
|
|
|
|
10.4
|
|
|
|
0.2
|
|
|
|
10.2
|
|
|
|
6.6
|
|
Total
|
|
$
|
5.2
|
|
|
$
|
74.8
|
|
|
$
|
1.1
|
|
|
$
|
73.7
|
|
|
$
|
52.9
|
|
(a)
|
Unearned interest supplements are excluded from securitization transactions.
|
(b)
|
Includes assets to be used to settle the liabilities of the consolidated VIEs.
|
(c)
|
Certain debt issued by the VIEs to affiliated companies served as collateral for accessing the ECB open market operations program. This external funding of $1.8 billion at December 31, 2009 was not reflected as debt of the VIEs and is reflected as non-VIE debt above. The finance receivables backing this external funding are reflected in VIE finance receivables.
|
The financial performance related to our securitization transactions for the periods ended September 30 were as follows (in millions):
|
|
Third Quarter
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Derivative
Expense
|
|
|
Interest
Expense
|
|
|
Total
|
|
|
Derivative
Expense/
(Income)
|
|
|
Interest
Expense
|
|
|
Total
|
|
VIE
|
|
$
|
90
|
|
|
$
|
297
|
|
|
$
|
387
|
|
|
$
|
272
|
|
|
$
|
408
|
|
|
$
|
680
|
|
Non-VIE
|
|
|
5
|
|
|
|
49
|
|
|
|
54
|
|
|
|
(10
|
)
|
|
|
66
|
|
|
|
56
|
|
Total
|
|
$
|
95
|
|
|
$
|
346
|
|
|
$
|
441
|
|
|
$
|
262
|
|
|
$
|
474
|
|
|
$
|
736
|
|
|
|
Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Derivative
Expense
|
|
|
Interest
Expense
|
|
|
Total
|
|
|
Derivative
Expense/
(Income)
|
|
|
Interest
Expense
|
|
|
Total
|
|
VIE
|
|
$
|
237
|
|
|
$
|
971
|
|
|
$
|
1,208
|
|
|
$
|
281
|
|
|
$
|
1,306
|
|
|
$
|
1,587
|
|
Non-VIE
|
|
|
13
|
|
|
|
183
|
|
|
|
196
|
|
|
|
(8
|
)
|
|
|
243
|
|
|
|
235
|
|
Total
|
|
$
|
250
|
|
|
$
|
1,154
|
|
|
$
|
1,404
|
|
|
$
|
273
|
|
|
$
|
1,549
|
|
|
$
|
1,822
|
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 5. TRANSFERS OF RECEIVABLES (Continued)
Certain of our securitization entities enter into derivative transactions to mitigate interest rate exposure, primarily resulting from fixed-rate assets securing floating-rate debt and, in certain instances, currency exposure resulting from assets in one currency and debt in another currency. Refer to Note 10 regarding the fair value of derivatives. In many instances, the counterparty enters into offsetting derivative transactions with us to mitigate their interest rate risk resulting from derivatives with our securitization entities. Our exposures based on the fair value of derivative instruments related to securitization programs at September 30, 2010 and December 31, 2009 were as follows (in millions):
|
|
September 30, 2010
|
|
|
|
Derivative Asset
|
|
|
Derivative Liability
|
|
|
|
Securitization
Entities
|
|
|
Ford Credit
(Excluding Securitization
Entities)
|
|
|
Total
|
|
|
Securitization
Entities
|
|
|
Ford Credit
(Excluding Securitization
Entities)
|
|
|
Total
|
|
VIE
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
24
|
|
|
$
|
327
|
|
|
$
|
—
|
|
|
$
|
327
|
|
Non-VIE
|
|
|
8
|
|
|
|
230
|
|
|
|
238
|
|
|
|
29
|
|
|
|
44
|
|
|
|
73
|
|
Total
|
|
$
|
32
|
|
|
$
|
230
|
|
|
$
|
262
|
|
|
$
|
356
|
|
|
$
|
44
|
|
|
$
|
400
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Derivative Asset
|
|
|
Derivative Liability
|
|
|
|
Securitization
Entities
|
|
|
Ford Credit
(Excluding Securitization
Entities)
|
|
|
Total
|
|
|
Securitization
Entities
|
|
|
Ford Credit
(Excluding Securitization
Entities)
|
|
|
Total
|
|
VIE
|
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
55
|
|
|
$
|
528
|
|
|
$
|
—
|
|
|
$
|
528
|
|
Non-VIE
|
|
|
14
|
|
|
|
383
|
|
|
|
397
|
|
|
|
51
|
|
|
|
27
|
|
|
|
78
|
|
Total
|
|
$
|
69
|
|
|
$
|
383
|
|
|
$
|
452
|
|
|
$
|
579
|
|
|
$
|
27
|
|
|
$
|
606
|
|
Off-Balance Sheet Securitization Transactions
We recognized a loss of $49 million in the third quarter of 2009, and income of $1 million and a loss of $30 million in the first nine months of 2010 and 2009, respectively, of investment and other income related to the sales of receivables. Third quarter of 2009 includes a $52 million valuation allowance for Australian finance receivables classified as held-for-sale at September 30, 2009. These amounts are included in
Other income, net
. Also, we received cash flows of $26 million and $60 million in the first nine months of 2010 and 2009, respectively, related to the net change in retained interests in securitized assets. These amounts are included in
All other investing activities
in our consolidated statement of cash flows.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 6. VARIABLE INTEREST ENTITIES
We adopted the FASB’s new accounting standard on VIEs on January 1, 2010. The standard requires ongoing assessments of whether an entity is the primary beneficiary of a VIE and enhancements to the disclosures about an entity’s involvement with a VIE. This standard requires the consolidation of a VIE if an entity has both (i) the power to direct the activities of the VIE, and (ii) the obligation to absorb losses or the right to receive residual returns that could potentially be significant to the VIE. Conversely, the standard does not permit consolidation if these two tests are not met. This new standard did not result in any deconsolidation of entities or additional consolidation of entities.
A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. Nearly all of our VIEs are special purpose entities used for our on-balance sheet securitizations.
If we determine that we have operating power and the obligation to absorb losses or receive benefits, we consolidate the VIE as the primary beneficiary and, if not, we do not consolidate. We have operating power when we have the ability to exercise discretion in the servicing of financial assets, issue additional debt, exercise a unilateral call option, add assets to revolving structures, or control investment decisions.
Assets recognized as a result of consolidating these VIEs do not represent additional assets that could be used to satisfy claims against our general assets. Conversely, 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 assets of the consolidated VIEs.
VIEs of which we are the primary beneficiary
We use special purpose entities to issue asset-backed securities in transactions to public and private investors, bank conduits and government-sponsored entities or others who obtain funding from government programs. We have deemed most of these special purpose entities to be VIEs. The asset-backed securities are secured by finance receivables and interests in net investments in operating leases. The assets continue to be consolidated by us. We retain interests in our securitization transactions, including senior and subordinated securities issued by the VIEs, rights to cash held for the benefit of the securitization investors, such as cash reserves, and residual interests.
The transactions create and pass along risks to the variable interest holders, depending on the assets securing the debt and the specific terms of the transactions. We aggregate and analyze our transactions based on the risk profile of the product and the type of funding structure, including:
|
•
|
Retail transactions
—
consumer credit risk and pre-payment risk, which are driven by the ability of the customer to pay, as well as the timing of the customer payments;
|
|
•
|
Wholesale transactions
—
dealer credit risk and Ford risk, as the receivables owned by the VIEs primarily arise from the financing provided by us to Ford-franchised dealers; therefore, the collections depend upon the sale of Ford vehicles; and
|
|
•
|
Net investment in operating lease transactions
—
vehicle residual value risk, consumer credit risk and pre-payment risk.
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 6. VARIABLE INTEREST ENTITIES (Continued)
As residual interest holder, we are exposed to the underlying residual and credit risk of the collateral, and are exposed to interest rate risk in some transactions. The amount of risk absorbed by our residual interests is generally represented by and limited to the amount of overcollateralization of our assets securing the debt and any cash reserves.
We have no obligation to repurchase or replace any securitized asset that subsequently becomes delinquent in payment or otherwise is in default, except under standard representations and warranties such as good and marketable title to the assets, or when certain changes are made to the underlying asset contracts. Securitization investors have no recourse to us or our other assets for credit losses on the securitized assets and have no right to require us to repurchase the investments. We do not guarantee any asset-backed securities and generally have no obligation to provide liquidity or contribute cash or additional assets to the VIEs. We may be required to support the performance of certain securitization transactions, however, by increasing cash reserves.
Although not contractually required, we regularly support our wholesale securitization programs by repurchasing receivables of a dealer from the VIEs when the dealer’s performance is at risk, which transfers the corresponding risk of loss from the VIE to us. In order to continue to fund the wholesale receivables, we also may contribute additional cash or wholesale receivables if the collateral falls below the required levels. The balances of cash related to these contributions were zero at September 30, 2010 and December 31, 2009, and ranged from zero to $1,361 million during the first nine months of 2010. In addition, while not contractually required, we may purchase the commercial paper issued by our FCAR asset-backed commercial paper program.
VIEs that are exposed to interest rate or currency risk have reduced their risks by entering into derivatives. In certain instances, we have entered into offsetting derivative transactions with the VIE to protect the VIE from the risks that are not mitigated through the derivative transactions between the VIE and its external counterparty. In other instances, we have entered into derivative transactions with the counterparty to protect the counterparty from risks absorbed through their derivative transactions with the VIEs. See Note 11 for additional information regarding our derivatives.
Refer to Note 5 for information on the financial position and financial performance of our VIEs.
VIEs of which we are not the primary beneficiary
We have an investment in Forso Nordic AB, a joint venture determined to be a VIE of which we are not the primary beneficiary. The joint venture provides consumer and dealer financing in its local markets and is financed by external debt and additional subordinated interest provided by our joint venture partner. The operating agreement indicates that the power to direct economically significant activities is shared with our joint venture partner, and the obligation to absorb losses or right to receive benefits resides primarily with our joint venture partner. Our investment in the joint venture is accounted for as an equity method investment and is included in
Other assets.
Our maximum exposure to any potential losses associated with this VIE is limited to our equity investment, and amounted to $73 million and $67 million at September 30, 2010 and December 31, 2009, respectively.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 7. OTHER ASSETS AND OTHER LIABILITIES AND DEFERRED INCOME
Other assets and other liabilities and deferred income consist of various balance sheet items that are combined for financial statement presentation due to their respective materiality compared with other individual asset and liability items. This footnote provides more information contained within the combined items.
Other assets at September 30, 2010 and December 31, 2009 were as follows (in millions):
|
|
September 30,
2010
|
|
|
December 31,
2009
|
|
Accrued interest, rents and other non-finance receivables
|
|
$
|
920
|
|
|
$
|
1,070
|
|
Collateral held for resale, at net realizable value
|
|
|
462
|
|
|
|
624
|
|
Deferred charges
|
|
|
336
|
|
|
|
665
|
|
Restricted cash (a)
|
|
|
304
|
|
|
|
308
|
|
Investment in used vehicles held for resale at net realizable value
|
|
|
240
|
|
|
|
458
|
|
Prepaid reinsurance premiums and other reinsurance receivables
|
|
|
235
|
|
|
|
275
|
|
Property and equipment, net of accumulated depreciation of $365 and $348 at
|
|
|
|
|
|
|
|
|
September 30, 2010 and December 31, 2009, respectively
|
|
|
150
|
|
|
|
177
|
|
Investment in non-consolidated affiliates
|
|
|
129
|
|
|
|
123
|
|
Other
|
|
|
320
|
|
|
|
400
|
|
Total other assets
|
|
$
|
3,096
|
|
|
$
|
4,100
|
|
(a)
|
Includes cash collateral required to be held against loans with the European Investment Bank as well as cash held to meet certain local governmental and regulatory reserve requirements.
|
Other liabilities and deferred income at September 30, 2010 and December 31, 2009 were as follows (in millions):
|
|
September 30,
2010
|
|
|
December 31,
2009
|
|
Interest payable
|
|
$
|
1,006
|
|
|
$
|
1,007
|
|
Deferred interest supplements and residual support payments on net investment in operating leases
|
|
|
878
|
|
|
|
1,074
|
|
Income taxes payable to Ford and affiliated companies (a)(b)
|
|
|
791
|
|
|
|
1,352
|
|
Unrecognized tax benefits
|
|
|
745
|
|
|
|
596
|
|
Unearned insurance premiums
|
|
|
261
|
|
|
|
315
|
|
Other
|
|
|
366
|
|
|
|
465
|
|
Total other liabilities and deferred income
|
|
$
|
4,047
|
|
|
$
|
4,809
|
|
(a)
|
During the second quarter of 2010, we purchased $1.3 billion principal amount of Ford’s Amortizing Guaranteed Secured Notes (“VEBA Note A”) issued to the UAW Retiree Medical Benefits Trust for $1.3 billion and immediately transferred the note to Ford in satisfaction of $1.3 billion of our tax liabilities to Ford.
|
(b)
|
In accordance with our intercompany tax sharing agreement with Ford.
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 8. DEBT
We have an asset-backed commercial paper program in the United States with qualified institutional investors. We also obtain other short-term funding from the issuance of demand notes to retail investors through our floating rate demand notes program. We have certain asset-backed securitization programs that issue short-term debt securities that are sold to institutional investors. Bank borrowings by several of our international affiliates in the ordinary course of business are an additional source of short-term funding.
We obtain long-term debt funding through the issuance of a variety of unsecured and asset-backed debt securities in the United States and international capital markets. We also sponsor a number of asset-backed securitization programs that issue long-term debt securities that are sold to institutional investors in the United States and international capital markets.
Debt
At September 30, 2010 and December 31, 2009, debt was as follows (in millions):
|
|
Interest Rates
|
|
|
|
|
|
|
|
|
|
Average Contractual (a)
|
|
|
Weighted-Average (b)
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed commercial paper (c)
|
|
|
0.5%
|
|
|
|
0.9%
|
|
|
|
|
|
|
|
|
$
|
6,689
|
|
|
$
|
6,369
|
|
Ford Interest Advantage (d)
|
|
|
1.9%
|
|
|
|
2.7%
|
|
|
|
|
|
|
|
|
|
4,551
|
|
|
|
3,680
|
|
Other asset-backed short-term debt (c)
|
|
|
2.4%
|
|
|
|
2.6%
|
|
|
|
|
|
|
|
|
|
2,402
|
|
|
|
4,482
|
|
Other short-term debt (e)
|
|
|
5.1%
|
|
|
|
4.2%
|
|
|
|
|
|
|
|
|
|
874
|
|
|
|
891
|
|
Total short-term debt
|
|
|
1.6%
|
|
|
|
2.0%
|
|
|
|
2.0%
|
|
|
|
3.0%
|
|
|
|
14,516
|
|
|
|
15,422
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior indebtedness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable within one year (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,323
|
|
|
|
7,053
|
|
Notes payable after one year (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,722
|
|
|
|
32,124
|
|
Asset-backed debt (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,461
|
|
|
|
18,952
|
|
Notes payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,465
|
|
|
|
23,076
|
|
Unamortized discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(435
|
)
|
|
|
(525
|
)
|
Fair value adjustments (f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
421
|
|
|
|
231
|
|
Total long-term debt (g)
|
|
|
5.4%
|
|
|
|
5.4%
|
|
|
|
5.0%
|
|
|
|
5.1%
|
|
|
|
73,957
|
|
|
|
80,911
|
|
Total debt
|
|
|
4.7%
|
|
|
|
4.8%
|
|
|
|
4.5%
|
|
|
|
4.8%
|
|
|
$
|
88,473
|
|
|
$
|
96,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of debt (h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
92,335
|
|
|
$
|
97,962
|
|
(a)
|
Third quarter of 2010 and fourth quarter of 2009 average contractual rates exclude the effects of derivatives and facility fees.
|
(b)
|
Third quarter of 2010 and fourth quarter of 2009 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. Refer to Note 5 for information regarding on-balance sheet securitization transactions.
|
(d)
|
The Ford Interest Advantage program consists of our floating rate demand notes.
|
(e)
|
Includes debt with affiliated companies as indicated in the table below.
|
(f)
|
Adjustments related to designated fair value hedges of unsecured debt.
|
(g)
|
Average contractual and weighted-average interest rates for total long-term debt reflect the rates for both notes payable within one year and notes payable after one year.
|
(h)
|
Fair value of debt reflects interest accrued but not yet paid of about $1 billion and $1.1 billion at September 30, 2010 and December 31, 2009, respectively. Interest accrued is reported in
Other liabilities and deferred income
and
Accounts payable – Affiliated companies
. See Note 10 for fair value methodology.
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
|
2009
|
|
Debt with affiliated companies
|
|
|
|
|
|
|
|
|
Other short-term debt
|
|
$
|
395
|
|
|
$
|
403
|
|
Notes payable within one year
|
|
|
163
|
|
|
|
40
|
|
Notes payable after one year
|
|
|
115
|
|
|
|
121
|
|
Total debt with affiliated companies
|
|
$
|
673
|
|
|
$
|
564
|
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 8. DEBT (Continued)
Debt Repurchases.
From time to time and based on market conditions, we may repurchase some of our outstanding debt. If we have excess liquidity and it is an economically favorable use of our available cash, we may repurchase debt at a price lower or higher than its carrying value, resulting in a gain or loss on extinguishment.
Through private market transactions, we repurchased unsecured debt and asset-backed notes for an aggregate principal amount of about $1 billion and about $3 billion in the third quarter of 2010 and the first nine months of 2010, respectively. As a result, we recorded pre-tax losses of $26 million and $86 million, net of unamortized premiums and discounts, in
Other income, net
in the third quarter of 2010 and the first nine months of 2010, respectively.
We repurchased unsecured debt for an aggregate principal amount of $1.5 billion and $2.5 billion in the third quarter of 2009 and the first nine months of 2009, respectively. As a result, we recorded a pre-tax loss of $4 million and a pre-tax gain of $18 million, net of unamortized premiums and discounts, in
Other income, net
in the third quarter of 2009 and the first nine months of 2009, respectively.
Debt Maturities.
Short-term and long-term debt matures at various dates through 2048. Maturities are as follows (in millions):
|
|
2010 (a)
|
|
|
2011 (b)
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter (c)
|
|
|
Total
|
|
Unsecured debt maturities
|
|
$
|
5,454
|
|
|
$
|
9,889
|
|
|
$
|
7,081
|
|
|
$
|
5,371
|
|
|
$
|
3,653
|
|
|
$
|
10,022
|
|
|
$
|
41,470
|
|
Asset-backed debt maturities
|
|
|
11,565
|
|
|
|
18,415
|
|
|
|
11,018
|
|
|
|
3,604
|
|
|
|
914
|
|
|
|
1,501
|
|
|
|
47,017
|
|
Unamortized discount (d)
|
|
|
1
|
|
|
|
—
|
|
|
|
(141
|
)
|
|
|
(58
|
)
|
|
|
(168
|
)
|
|
|
(69
|
)
|
|
|
(435
|
)
|
Fair value adjustments (d)
|
|
|
—
|
|
|
|
50
|
|
|
|
106
|
|
|
|
103
|
|
|
|
57
|
|
|
|
105
|
|
|
|
421
|
|
Total debt maturities
|
|
$
|
17,020
|
|
|
$
|
28,354
|
|
|
$
|
18,064
|
|
|
$
|
9,020
|
|
|
$
|
4,456
|
|
|
$
|
11,559
|
|
|
$
|
88,473
|
|
(a)
|
Includes about $11 billion for short-term and about $6 billion for long-term debt.
|
(b)
|
Includes $3.5 billion for short-term and $24.9 billion for long-term debt.
|
(c)
|
Approximately $8.7 billion of unsecured debt matures between 2015 and 2020 with the remaining balance maturing after 2030.
|
(d)
|
Unamortized discount and fair value adjustments are presented based on maturity date of related debt.
|
NOTE 9. RETAINED EARNINGS
The following table summarizes earnings retained for use in the business for the periods ended September 30 (in millions):
|
|
Third Quarter
|
|
|
Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Retained earnings, beginning balance
|
|
$
|
5,363
|
|
|
$
|
4,331
|
|
|
$
|
4,779
|
|
|
$
|
4,985
|
|
Net income
|
|
|
497
|
|
|
|
427
|
|
|
|
1,581
|
|
|
|
827
|
|
Distributions
|
|
|
(1,000
|
)
|
|
|
(431
|
)
|
|
|
(1,500
|
)
|
|
|
(1,485
|
)
|
Retained earnings, ending balance
|
|
$
|
4,860
|
|
|
$
|
4,327
|
|
|
$
|
4,860
|
|
|
$
|
4,327
|
|
In the third quarter of 2009, we made a cash distribution of $400 million and a non-cash distribution of $31 million for our ownership interest in AB Volvofinans to our parent, Ford Holdings LLC.
In the first quarter of 2009, a plan was announced to restructure Ford’s debt through a combination of a conversion offer by Ford and tender offers by us. As part of this debt restructuring, we commenced a cash tender offer for Ford’s secured term loan under Ford’s secured credit agreement,
pursuant to which we purchased from lenders $2.2 billion principal amount of term loan for an aggregate cost of about $1.1 billion (including transaction costs). This transaction settled on March 27, 2009, following which we distributed the term loan to our parent, Ford Holdings LLC, whereupon it was forgiven. The transaction is reflected in the table above as a $1,054 million distribution in the first nine months of 2009,
which consists of the fair value of the term loan purchased plus transaction expenses.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 10. FAIR VALUE MEASUREMENTS
Certain assets and liabilities are presented on our financial statements at fair value. Assets and liabilities measured at fair value on a recurring basis on our balance sheet include cash equivalents, marketable securities, derivative financial instruments and retained interests in securitized assets. Assets and liabilities measured at fair value on a recurring basis for disclosure purposes only include finance receivables and debt. The fair value of these items are presented together with the related carrying value in Notes 2 and 8, respectively. Assets and liabilities measured at fair value on a nonrecurring basis vary based on specific circumstances such as impairments.
We adopted the FASB’s new accounting standard on fair value measurements on January 1, 2010. The standard requires both new disclosures and clarifies existing disclosures. The standard also requires a greater level of disaggregated information in the fair value hierarchy as well as expands disclosures about valuation techniques and inputs to measure fair value, as defined below.
Fair Value Measurements
Fair value is 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 methodologies and prioritize the use of observable inputs. 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 include data not observable in the market and reflect management’s judgments about the assumptions market participants would use in pricing the asset or liability.
|
The use of observable and unobservable inputs and their significance in measuring fair value are reflected in our hierarchy assessment.
Valuation Methodologies
Cash, Cash Equivalents and Marketable Securities
. Cash and all highly liquid investments with a maturity of 90 days or less at the date of purchase are classified as
Cash and cash equivalents
. Investments in securities with a maturity date greater than 90 days at the date of purchase are classified as
Marketable securities
. Cash on hand, time deposits, certificates of deposit, and money market accounts are reported at par value, which approximates fair value. For other investment securities, we generally measure fair value based on a market approach using prices obtained from pricing services. We review all pricing data for reasonability and observability of inputs. Pricing methodologies and inputs to valuation models used by the pricing services depend on the security type (i.e., asset class). Where possible, fair values are generated using market inputs including quoted prices (the closing price in an exchange market), bid prices (the price at which a dealer stands ready to purchase) and other market information. For securities that are not actively traded, the pricing services obtain quotes for similar fixed-income securities or utilize matrix pricing, benchmark curves or other factors to determine fair value. In certain cases, when observable pricing data is not available, we estimate the fair value of investment securities based on an income approach using industry standard valuation models and estimates regarding non-performance risk.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 10. FAIR VALUE MEASUREMENTS (Continued)
Derivative Financial Instruments
. Our derivatives are over-the-counter customized derivative transactions and are not exchange traded. We estimate the fair value of these instruments based on an income approach 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. The discount rate used is the relevant interbank deposit rate (e.g., LIBOR) plus an adjustment for non-performance risk. The adjustment reflects the full credit default swap (“CDS”) spread applied to a net exposure, by counterparty. We use our counterparty’s CDS spread when we are in a net asset position and our own CDS spread when we are in a net liability position.
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 for longer-dated instruments where market data is less observable. Also, for interest rate swaps and cross-currency interest rate swaps used in securitization transactions, the notional amount of the swap is adjusted for actual payments on the securitized contracts. We use management judgment to estimate the timing and amount of the remaining swap cash flows based on historical pre-payment speeds.
Retained Interests in Securitized Assets
. We estimate the fair value of retained interests based on an income approach using internal valuation models. These models project future cash flows of the 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 projected cash flows are discounted to a present value based on market inputs and our own assumptions regarding credit losses, pre-payment speed and the discount rate.
Finance Receivables
. We generally estimate the fair value of finance receivables based on an income approach using internal valuation models. These models project future cash flows of financing contracts based on scheduled contract payments (including principal and interest). The projected cash flows are discounted to a present value based on market inputs and our own assumptions regarding credit losses, pre-payment speed and the discount rate. Our assumptions regarding pre-payment speed and credit losses are based on historical performance.
Debt
. We estimate the fair value of debt based on a market approach using quoted market prices or current market rates for similar debt with approximately the same remaining maturities, where possible. Where market prices are not available, we estimate fair value based on an income approach using discounted cash flow models. These models project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates, our own credit risk and the contractual terms of the debt instruments. For asset-backed debt issued in securitization transactions, the actual principal payments are based on the receipts from the securitized contracts. We use management judgment to estimate the timing and amount of the remaining cash flows based on historical pre-payment speeds.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 10. FAIR VALUE MEASUREMENTS (Continued)
Input Hierarchy
The following tables summarize the fair values by input hierarchy for financial instruments measured at fair value on a recurring basis at September 30, 2010 and December 31, 2009 (in millions):
|
|
September 30, 2010
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
—
financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
|
$
|
125
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
125
|
|
Government-sponsored enterprises
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Corporate debt
|
|
|
—
|
|
|
|
400
|
|
|
|
—
|
|
|
|
400
|
|
Government
—
non U.S.
|
|
|
—
|
|
|
|
241
|
|
|
|
—
|
|
|
|
241
|
|
Total cash equivalents
—
financial instruments (a)
|
|
|
125
|
|
|
|
641
|
|
|
|
—
|
|
|
|
766
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
|
|
3,761
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,761
|
|
Government-sponsored enterprises
|
|
|
—
|
|
|
|
5,114
|
|
|
|
—
|
|
|
|
5,114
|
|
Corporate debt (b)
|
|
|
—
|
|
|
|
1,695
|
|
|
|
7
|
|
|
|
1,702
|
|
Mortgage-backed
|
|
|
—
|
|
|
|
232
|
|
|
|
—
|
|
|
|
232
|
|
Government
—
non U.S.
|
|
|
—
|
|
|
|
589
|
|
|
|
—
|
|
|
|
589
|
|
Other liquid investments (c)
|
|
|
—
|
|
|
|
139
|
|
|
|
—
|
|
|
|
139
|
|
Total marketable securities
|
|
|
3,761
|
|
|
|
7,769
|
|
|
|
7
|
|
|
|
11,537
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
—
|
|
|
|
1,302
|
|
|
|
241
|
|
|
|
1,543
|
|
Foreign exchange forward contracts
|
|
|
—
|
|
|
|
83
|
|
|
|
—
|
|
|
|
83
|
|
Cross currency interest rate swap contracts
|
|
|
—
|
|
|
|
57
|
|
|
|
—
|
|
|
|
57
|
|
Total derivative financial instruments
|
|
|
—
|
|
|
|
1,442
|
|
|
|
241
|
|
|
|
1,683
|
|
Retained interests in securitized assets (d)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total assets at fair value
|
|
$
|
3,886
|
|
|
$
|
9,852
|
|
|
$
|
248
|
|
|
$
|
13,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
—
|
|
|
$
|
147
|
|
|
$
|
300
|
|
|
$
|
447
|
|
Foreign exchange forward contracts
|
|
|
—
|
|
|
|
17
|
|
|
|
—
|
|
|
|
17
|
|
Cross currency interest rate swap contracts
|
|
|
—
|
|
|
|
122
|
|
|
|
76
|
|
|
|
198
|
|
Total derivative financial instruments
|
|
|
—
|
|
|
|
286
|
|
|
|
376
|
|
|
|
662
|
|
Total liabilities at fair value
|
|
$
|
—
|
|
|
$
|
286
|
|
|
$
|
376
|
|
|
$
|
662
|
|
(a)
|
Excludes $5.8 billion of time deposits, certificates of deposit, money market accounts, and other cash equivalents reported at par value, which approximates fair value. In addition to these cash equivalents, we also had cash on hand totaling $2.2 billion.
|
(b)
|
Includes notes issued by supranational institutions.
|
(c)
|
Includes certificates of deposits and time deposits with maturities greater than 90 days at the date of purchase.
|
(d)
|
Retained interests in securitized assets are reported in
Other assets
.
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 10. FAIR VALUE MEASUREMENTS (Continued)
|
|
December 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
—
financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
|
$
|
75
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
75
|
|
Government-sponsored enterprises
|
|
|
—
|
|
|
|
400
|
|
|
|
—
|
|
|
|
400
|
|
Corporate debt
|
|
|
—
|
|
|
|
75
|
|
|
|
—
|
|
|
|
75
|
|
Government
—
non U.S.
|
|
|
—
|
|
|
|
29
|
|
|
|
—
|
|
|
|
29
|
|
Total cash equivalents
—
financial instruments (a)
|
|
|
75
|
|
|
|
504
|
|
|
|
—
|
|
|
|
579
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
|
|
5,256
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,256
|
|
Government-sponsored enterprises
|
|
|
—
|
|
|
|
1,098
|
|
|
|
—
|
|
|
|
1,098
|
|
Corporate debt
|
|
|
—
|
|
|
|
159
|
|
|
|
4
|
|
|
|
163
|
|
Mortgage-backed
|
|
|
—
|
|
|
|
237
|
|
|
|
—
|
|
|
|
237
|
|
Government
—
non U.S.
|
|
|
—
|
|
|
|
65
|
|
|
|
—
|
|
|
|
65
|
|
Other liquid investments (b)
|
|
|
—
|
|
|
|
45
|
|
|
|
—
|
|
|
|
45
|
|
Total marketable securities
|
|
|
5,256
|
|
|
|
1,604
|
|
|
|
4
|
|
|
|
6,864
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
—
|
|
|
|
1,230
|
|
|
|
407
|
|
|
|
1,637
|
|
Foreign exchange forward contracts
|
|
|
—
|
|
|
|
22
|
|
|
|
—
|
|
|
|
22
|
|
Cross currency interest rate swap contracts
|
|
|
—
|
|
|
|
203
|
|
|
|
—
|
|
|
|
203
|
|
Total derivative financial instruments
|
|
|
—
|
|
|
|
1,455
|
|
|
|
407
|
|
|
|
1,862
|
|
Retained interests in securitized assets (c)
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
|
|
26
|
|
Total assets at fair value
|
|
$
|
5,331
|
|
|
$
|
3,563
|
|
|
$
|
437
|
|
|
$
|
9,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
—
|
|
|
$
|
409
|
|
|
$
|
437
|
|
|
$
|
846
|
|
Foreign exchange forward contracts
|
|
|
—
|
|
|
|
51
|
|
|
|
—
|
|
|
|
51
|
|
Cross currency interest rate swap contracts
|
|
|
—
|
|
|
|
144
|
|
|
|
138
|
|
|
|
282
|
|
Total derivative financial instruments
|
|
|
—
|
|
|
|
604
|
|
|
|
575
|
|
|
|
1,179
|
|
Total liabilities at fair value
|
|
$
|
—
|
|
|
$
|
604
|
|
|
$
|
575
|
|
|
$
|
1,179
|
|
(a)
|
Excludes $7.5 billion of time deposits, certificates of deposit, money market accounts, and other cash equivalents reported at par value, which approximates fair value. In addition to these cash equivalents, we also had cash on hand totaling $2.8 billion.
|
(b)
|
Includes certificates of deposits and time deposits with maturities greater than 90 days at the date of purchase.
|
(c)
|
Retained interests in securitized assets are reported in
Other assets
.
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 10. FAIR VALUE MEASUREMENTS (Continued)
Reconciliation of Changes in Level 3 Financial Instrument Balances
The following summarizes the changes in Level 3 financial instruments measured at fair value on a recurring basis on our balance sheet for the periods ending September 30 (in millions):
|
|
2010
|
|
|
|
Fair Value at December 31,
2009
|
|
|
Total Realized/ Unrealized Gains/(Losses)
|
|
|
Net Purchases/ (Settlements)
|
|
|
Net Transfers Into/(Out of) Level 3
|
|
|
Fair Value at September 30, 2010
|
|
|
Change in Unrealized Gains/(Losses)
on Instruments Still Held (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
Corporate debt
|
|
$
|
4
|
|
|
$
|
(4
|
)
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
0
|
|
Derivative financial
instruments, net
|
|
|
(168
|
)
|
|
|
(96
|
)
|
|
|
129
|
|
|
|
—
|
|
|
|
(135
|
)
|
|
|
32
|
|
Retained interests in
securitized assets
|
|
|
26
|
|
|
|
(1
|
)
|
|
|
(25
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
(138
|
)
|
|
$
|
(101
|
)
|
|
$
|
111
|
|
|
$
|
—
|
|
|
$
|
(128
|
)
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) For those assets and liabilities still held at reporting date.
|
|
|
|
2009 (a)
|
|
|
|
Fair Value at December 31,
2008
|
|
|
Total Realized/ Unrealized Gains/(Losses)
|
|
|
Net Purchases/ (Settlements)
|
|
|
Net Transfers Into/(Out of) Level 3
|
|
|
Fair Value at September 30,
2009
|
|
|
Change in Unrealized Gains/(Losses)
on Instruments Still Held (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
Corporate debt
|
|
$
|
5
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
(2
|
)
|
Derivative financial
instruments, net
|
|
|
(81
|
)
|
|
|
(61
|
)
|
|
|
(30
|
)
|
|
|
—
|
|
|
|
(172
|
)
|
|
|
(108
|
)
|
Retained interests in
securitized assets
|
|
|
92
|
|
|
|
9
|
|
|
|
(68
|
)
|
|
|
—
|
|
|
|
33
|
|
|
|
(1
|
)
|
Total
|
|
$
|
16
|
|
|
$
|
(54
|
)
|
|
$
|
(98
|
)
|
|
$
|
—
|
|
|
$
|
(136
|
)
|
|
$
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Refer to our 2009 10-K Report for reconciliation of full year 2009.
|
(b) For those assets and liabilities still held at reporting date.
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 10. FAIR VALUE MEASUREMENTS (Continued)
The following summarizes the realized/unrealized gains/(losses) on Level 3 financial instruments by position in the consolidated statement of operations for the periods ended September 30 (in millions):
|
|
Third Quarter
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Other
Income, net
|
|
|
Other
Comprehensive
Income/(Loss)
(a)
|
|
|
Total Realized/
Unrealized
Gains/(Losses)
|
|
|
Other
Income, net
|
|
|
Other
Comprehensive
Income/(Loss)
(a)
|
|
|
Total Realized/
Unrealized
Gains/(Losses)
|
|
Marketable securities
|
|
$
|
0
|
|
|
$
|
—
|
|
|
$
|
0
|
|
|
$
|
―
|
|
|
$
|
―
|
|
|
$
|
―
|
|
Derivative financial instruments, net (b)
|
|
|
(53
|
)
|
|
|
(8
|
)
|
|
|
(61
|
)
|
|
|
(85
|
)
|
|
|
(19
|
)
|
|
|
(104
|
)
|
Retained interests in securitized assets
|
|
|
—
|
|
|
|
0
|
|
|
|
0
|
|
|
|
―
|
|
|
|
1
|
|
|
|
1
|
|
Total
|
|
$
|
(53
|
)
|
|
$
|
(8
|
)
|
|
$
|
(61
|
)
|
|
$
|
(85
|
)
|
|
$
|
(18
|
)
|
|
$
|
(103
|
)
|
|
|
(a)
|
Other Comprehensive Income/(Loss) on derivative financial instruments represents foreign currency translation on instruments held by non-U.S. dollar affiliates.
|
(b)
|
See Note 11 for detail on financial statement presentation by hedge designation.
|
|
|
First Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Other
Income, net
|
|
|
Other
Comprehensive
Income/(Loss)
(a)
|
|
|
Total Realized/
Unrealized Gains/(Losses)
|
|
|
Other
Income, net
|
|
|
Other
Comprehensive
Income/(Loss)
(a)
|
|
|
Total Realized/
Unrealized Gains/(Losses)
|
|
Marketable securities
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
Derivative financial instruments, net (b)
|
|
|
(93
|
)
|
|
|
(3
|
)
|
|
|
(96
|
)
|
|
|
(62
|
)
|
|
|
1
|
|
|
|
(61
|
)
|
Retained interests in securitized assets
|
|
|
(3
|
)
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
10
|
|
|
|
(1
|
)
|
|
|
9
|
|
Total
|
|
$
|
(100
|
)
|
|
$
|
(1
|
)
|
|
$
|
(101
|
)
|
|
$
|
(54
|
)
|
|
$
|
0
|
|
|
$
|
(54
|
)
|
(a)
|
Other Comprehensive Income/(Loss) on derivative financial instruments represents foreign currency translation on instruments held by non-U.S. dollar affiliates.
|
(b)
|
See Note 11 for detail on financial statement presentation by hedge designation.
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 10. FAIR VALUE MEASUREMENTS (Continued)
Items Measured at Fair Value on a Nonrecurring Basis
There were no nonrecurring fair value measurements subsequent to initial recognition recorded during the first nine months of 2010.
The following table summarizes the fair values of items measured at fair value on a nonrecurring basis at September 30, 2009 (in millions):
|
|
September 30, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Total Gains/(Losses)
|
|
|
|
|
|
Held-for-sale finance receivables (a)
|
|
$
|
—
|
|
|
$
|
911
|
|
|
$
|
—
|
|
|
$
|
911
|
|
|
$
|
(52
|
)
|
(a)
|
During the third quarter of 2009, we reclassified held-for-investment Australian finance receivables that we no longer had the intent to hold for the foreseeable future or until maturity or payoff to
Assets held-for-sale
. We used information from an independent bid for these assets to determine fair value. The loss was recorded to
Other income, net.
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, our operations are exposed to global market risks, including the effect of changes in interest rates and foreign currency exchange rates. To manage these risks, we enter into various derivative contracts. Interest rate contracts including swaps, caps and floors are used to manage the effects of interest rate fluctuations. Cross-currency interest rate swap contracts are used to manage foreign currency and interest rate exposures on foreign denominated debt. Foreign exchange forward contracts are used to manage foreign exchange exposure.
Our derivatives are over-the-counter customized derivative transactions and are not exchange traded. Management reviews our hedging program, derivative positions, and overall risk management on a regular basis.
We have elected to apply hedge accounting to certain derivatives. Derivatives that receive designated hedge accounting treatment are documented and the relationships are evaluated for effectiveness at the time they are designated, as well as throughout the hedge period. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting. Regardless of hedge accounting treatment, we only enter into transactions we believe will be highly effective at offsetting the underlying economic risk. Refer to our 2009 10-K Report for a more detailed description of our derivative financial instruments and hedge accounting policies.
We adopted the FASB’s new accounting standard on embedded credit derivatives on July 1, 2010. Issued in March 2010, this standard clarifies and amends the accounting for credit derivatives embedded in beneficial interests in securitized financial assets. As required in the standard, we reviewed each securitization structure to determine if any structure contained one or more embedded credit derivative features that no longer qualified for the scope exception. The standard did not impact our financial condition, results of operations, or financial statement disclosures.
Income Effect of Derivative Financial Instruments
The following table summarizes the pre-tax gain/(loss) for each type of hedge designation for the periods ended September 30 (in millions):
|
|
Gain/(Loss) Recognized in Income
|
|
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest settlements, accruals, and fees excluded from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the assessment of hedge effectiveness
|
|
$
|
60
|
|
|
$
|
50
|
|
|
$
|
165
|
|
|
$
|
107
|
|
Ineffectiveness (a)
|
|
|
3
|
|
|
|
(18
|
)
|
|
|
3
|
|
|
|
(14
|
)
|
Total
|
|
$
|
63
|
|
|
$
|
32
|
|
|
$
|
168
|
|
|
$
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
16
|
|
|
$
|
28
|
|
|
$
|
28
|
|
|
$
|
(63
|
)
|
Foreign exchange forward contracts (b)
|
|
|
78
|
|
|
|
(106
|
)
|
|
|
75
|
|
|
|
(269
|
)
|
Cross currency interest rate swap contracts (b)
|
|
|
(80
|
)
|
|
|
(54
|
)
|
|
|
8
|
|
|
|
60
|
|
Other contracts
|
|
|
0
|
|
|
|
1
|
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
$
|
14
|
|
|
$
|
(131
|
)
|
|
$
|
111
|
|
|
$
|
(272
|
)
|
(a)
|
For the third quarter of 2010 and 2009, hedge ineffectiveness reflects a $83 million gain and a $46 million gain on derivatives, respectively, and a $80 million loss and $64 million loss on hedged items, respectively. For the first nine months of 2010 and 2009, hedge ineffectiveness reflects a $238 million gain and a $1 million loss on derivatives, respectively, and a $235 million loss and a $13 million loss on hedged items, respectively.
|
(b)
|
Gains/(Losses) related to foreign currency derivatives were substantially offset by net revaluation impacts on foreign denominated debt, which are recorded in
Other income, net
.
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
For our fair value hedges, net interest settlements, accruals, and fees are excluded from the assessment of hedge effectiveness. We report net interest settlements and accruals in
Interest expense
.
Fees and foreign currency revaluation on accrued interest ($2 million gain and $3 million gain in the third quarter of 2010 and 2009, respectively, and $8 million loss and $2 million gain in the first nine months of 2010 and 2009, respectively) are reported in
Other income, net
. We report hedge ineffectiveness on fair value hedges in
Other income, net
. We report all income items on derivatives not designated as hedging instruments in
Other income, net
.
Balance Sheet Effect of Derivative Financial Instruments
The following tables summarize the estimated fair value of our derivative financial instruments at September 30, 2010 and December 31, 2009 (in millions):
|
|
September 30, 2010
|
|
|
|
|
|
|
Fair
|
|
|
Fair
|
|
|
|
|
|
|
Value
|
|
|
Value
|
|
|
|
Notional
|
|
|
Assets
|
|
|
Liabilities
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
8,549
|
|
|
$
|
652
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
55,050
|
|
|
|
891
|
|
|
|
447
|
|
Foreign exchange forward contracts (a)
|
|
|
3,820
|
|
|
|
83
|
|
|
|
17
|
|
Cross currency interest rate swap contracts
|
|
|
2,013
|
|
|
|
57
|
|
|
|
198
|
|
Total derivatives not designated as hedging instruments
|
|
|
60,883
|
|
|
|
1,031
|
|
|
|
662
|
|
Total derivative financial instruments
|
|
$
|
69,432
|
|
|
$
|
1,683
|
|
|
$
|
662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Includes forward contracts between Ford Credit and an affiliated company.
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Fair
|
|
|
Fair
|
|
|
|
|
|
|
Value
|
|
|
Value
|
|
|
|
Notional
|
|
|
Assets
|
|
|
Liabilities
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
6,309
|
|
|
$
|
385
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
68,153
|
|
|
|
1,252
|
|
|
|
846
|
|
Foreign exchange forward contracts (a)
|
|
|
3,939
|
|
|
|
22
|
|
|
|
51
|
|
Cross currency interest rate swap contracts
|
|
|
3,873
|
|
|
|
203
|
|
|
|
282
|
|
Total derivatives not designated as hedging instruments
|
|
|
75,965
|
|
|
|
1,477
|
|
|
|
1,179
|
|
Total derivative financial instruments
|
|
$
|
82,274
|
|
|
$
|
1,862
|
|
|
$
|
1,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Includes forward contracts between Ford Credit and an affiliated company.
|
We report derivative assets and derivative liabilities in
Derivative financial instruments
. To ensure consistency in our treatment of derivative and non-derivative exposures with regard to our master agreements, we do not net our derivative position by counterparty for purposes of balance sheet presentation and disclosure.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks described above. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates or foreign currency exchange rates.
Counterparty Risk
Use of derivatives exposes us to the risk that a counterparty may default on a derivative contract. We establish exposure limits for each counterparty to minimize this risk and provide counterparty diversification. Substantially all of our derivative exposures are with counterparties that have long-term credit ratings of single-A or better. The aggregate fair value of derivative instruments in asset positions on September 30, 2010 is approximately $1.7 billion, representing the maximum loss we would recognize at that date if all counterparties failed to perform as contracted. We enter into master agreements with counterparties that generally allow for netting of certain exposures; therefore, the actual loss we would recognize if all counterparties failed to perform as contracted would be significantly lower.
We include an adjustment for non-performance risk in the fair value of derivative instruments. Our adjustment for non-performance risk relative to a measure based on an unadjusted inter-bank deposit rate (e.g., LIBOR) reduced our derivative assets by $17 million and $6 million, and our derivative liabilities by $6 million and $15 million at September 30, 2010 and December 31, 2009, respectively. See Note 10 for additional information regarding fair value measurements.
NOTE 12. DIVESTITURES AND OTHER ACTIONS
We execute divestitures and alternative business arrangements primarily where securitization and other funding availability is limited. Specific actions we have undertaken are presented below by segment.
North America Segment
Triad Financial Corporation.
In 2005, we completed the sale of Triad Financial Corporation. We received additional proceeds pursuant to a contractual agreement entered into at the closing of the sale, and recognized an after-tax gain of $2 million in the first nine months of 2009 in
Gain on disposal of discontinued operations
.
International Segment
FCA Holdings Limited.
At the end of the third quarter 2009, we reclassified $911 million of finance receivables that we no longer had the intent to hold for the foreseeable future, or until maturity or payoff, from
Finance receivables, net
to
Assets held-for-sale
. These assets represented the majority of our retail finance receivables in FCA Holdings Limited, our operation in Australia. With the reclassification, we recorded a valuation allowance of $52 million to
Other income
,
net
to reflect the receivables at the lower of cost or fair value. The receivables were sold on October 1, 2009.
Primus Leasing Company Limited.
In March 2009, we completed the sale of Primus Leasing Company Limited, our operation in Thailand that offered automotive retail and wholesale financing of Ford, Mazda and Volvo vehicles. As a result of the sale,
Finance receivables, net
were reduced by $173 million, and we recognized a de minimis pre-tax gain in
Other income, net
.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 13. OTHER INCOME
Other income consists of various line items that are combined on the consolidated statement of operations due to their respective materiality compared with other individual income and expense items. This footnote provides more detailed information contained within this item.
The following table summarizes amounts included in
Other income, net
(in millions):
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Interest and investment income
|
|
$
|
41
|
|
|
$
|
52
|
|
|
$
|
101
|
|
|
$
|
130
|
|
Gains/(Losses) on derivatives (a)
|
|
|
19
|
|
|
|
(147
|
)
|
|
|
106
|
|
|
|
(284
|
)
|
Currency revaluation gains/(losses) (b)
|
|
|
(12
|
)
|
|
|
211
|
|
|
|
(115
|
)
|
|
|
482
|
|
Other
|
|
|
27
|
|
|
|
28
|
|
|
|
118
|
|
|
|
246
|
|
Other income, net
|
|
$
|
75
|
|
|
$
|
144
|
|
|
$
|
210
|
|
|
$
|
574
|
|
(a)
|
Gains/(Losses) related to foreign currency derivatives are substantially offset by net revaluation impacts on foreign denominated debt. See Note 11 for detail by derivative instrument and risk type.
|
(b)
|
Includes net gains of $65 million and $316 million in pre-tax earnings related to unhedged currency exposure primarily from cross-border intercompany lending in the third quarter of 2009 and the first nine months of 2009, respectively.
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 14. EMPLOYEE SEPARATION ACTIONS
We continuously monitor and manage the cost structure of our business to remain competitive within the industry. Restructuring charges related to employee separation actions are presented below by segment.
North America Segment
In the first quarter of 2010, we announced plans to continue to restructure our U.S. operations to meet changing business conditions, including the decline in our receivables. The restructuring has occurred through attrition, retirements, and involuntary separations. In the first nine months of 2010, we recognized a pre-tax charge of $14 million in
Operating expenses
as a result of these actions; the pre-tax charge in the third quarter of 2010 was de minimis.
In the third quarter of 2009 and the first nine months of 2009, we recognized pre-tax charges of $4 million and $37 million, respectively, in
Operating expenses
for employee separation actions relating to our U.S. restructuring which affected our servicing, sales, and central operations. In 2010, we released $1 million of this reserve.
In the third quarter of 2009 and the first nine months of 2009, we recognized pre-tax charges of $2 million in
Operating expenses
for employee separation actions in Canada.
International Segment
In the third quarter of 2010 and the first nine months of 2010, we recognized pre-tax charges of $3 million and $9 million (including $1 million for retirement plan benefits), respectively, in
Operating expenses
for employee separation actions primarily in European locations.
In the third quarter of 2009 and the first nine months of 2009, we recognized pre-tax charges of $7 million and $24 million (including $1 million of income and $7 million of expense for retirement plan benefits), respectively, in
Operating expenses
for employee separation actions in Latin America, Asia Pacific and European locations.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 15. SEGMENT INFORMATION
We conduct our financing operations directly and indirectly through our subsidiaries and affiliates. We offer substantially similar products and services throughout many different regions, subject to local legal restrictions and market conditions. 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 to 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. We also adjust segment performance to re-allocate interest expense between the North America and International segments reflecting debt and equity levels proportionate to their product risk. 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 consolidated 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 business segments for the periods ended September 30 were as follows (in millions):
|
|
|
|
|
|
|
|
Unallocated/Eliminations
|
|
|
|
|
|
|
North
America
Segment
|
|
|
International
Segment
|
|
|
Unallocated
Risk
Management
|
|
|
Effect of
Sales of
Receivables
|
|
|
Effect of
Unearned
Interest Supplements
|
|
|
Total
|
|
|
Total
|
|
|
|
Third Quarter 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (a)
|
|
$
|
1,937
|
|
|
$
|
506
|
|
|
$
|
(17
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(17
|
)
|
|
$
|
2,426
|
|
Income/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes
|
|
|
691
|
|
|
|
92
|
|
|
|
(17
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(17
|
)
|
|
|
766
|
|
Provision for/(Benefit from) income taxes
|
|
|
243
|
|
|
|
33
|
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(7
|
)
|
|
|
269
|
|
Income/(Loss) from continuing operations
|
|
|
448
|
|
|
|
59
|
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(10
|
)
|
|
|
497
|
|
Other disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on vehicles subject to operating leases
|
|
|
363
|
|
|
|
41
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
404
|
|
Interest expense
|
|
|
748
|
|
|
|
277
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,025
|
|
Provision for credit losses
|
|
|
(56
|
)
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (a)
|
|
$
|
2,602
|
|
|
$
|
576
|
|
|
$
|
34
|
|
|
$
|
(7
|
)
|
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
3,205
|
|
Income/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes (b)
|
|
|
650
|
|
|
|
(7
|
)
|
|
|
34
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34
|
|
|
|
677
|
|
Provision for/(Benefit from) income taxes
|
|
|
242
|
|
|
|
(3
|
)
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
250
|
|
Income/(Loss) from continuing operations
|
|
|
408
|
|
|
|
(4
|
)
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
|
427
|
|
Other disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on vehicles subject to operating leases
|
|
|
773
|
|
|
|
69
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
842
|
|
Interest expense
|
|
|
896
|
|
|
|
366
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
1,259
|
|
Provision for credit losses
|
|
|
65
|
|
|
|
46
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
111
|
|
(a)
|
Total Revenue represents
Total financing revenue, Insurance premiums earned, net
and
Other income, net.
|
(b)
|
North America segment income/(loss) before income taxes includes a net gain of $65 million related to unhedged currency exposure primarily from cross-border intercompany lending.
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 15. SEGMENT INFORMATION (Continued)
|
|
|
|
|
|
|
|
Unallocated/Eliminations
|
|
|
|
|
|
|
North
America
Segment
|
|
|
International
Segment
|
|
|
Unallocated
Risk
Management
|
|
|
Effect of
Sales of
Receivables
|
|
|
Effect of
Unearned
Interest Supplements
|
|
|
Total
|
|
|
Total
|
|
|
|
First Nine Months 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (a)
|
|
$
|
6,306
|
|
|
$
|
1,590
|
|
|
$
|
(7
|
)
|
|
$
|
(11
|
)
|
|
$
|
—
|
|
|
$
|
(18
|
)
|
|
$
|
7,878
|
|
Income/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes
|
|
|
2,224
|
|
|
|
265
|
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(7
|
)
|
|
|
2,482
|
|
Provision for/(Benefit from) income taxes
|
|
|
811
|
|
|
|
93
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
901
|
|
Income/(Loss) from continuing operations
|
|
|
1,413
|
|
|
|
172
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
1,581
|
|
Other disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on vehicles subject to operating leases
|
|
|
1,405
|
|
|
|
115
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,520
|
|
Interest expense
|
|
|
2,346
|
|
|
|
893
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
3,238
|
|
Provision for credit losses
|
|
|
(268
|
)
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(255
|
)
|
Finance receivables and net investment in operating leases
|
|
|
63,994
|
|
|
|
20,566
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,997
|
)
|
|
|
(1,997
|
)
|
|
|
82,563
|
|
Total assets
|
|
|
83,839
|
|
|
|
26,777
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,997
|
)
|
|
|
(1,997
|
)
|
|
|
108,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (a)
|
|
$
|
8,462
|
|
|
$
|
1,875
|
|
|
$
|
43
|
|
|
$
|
(28
|
)
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
10,352
|
|
Income/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes (b)
|
|
|
1,245
|
|
|
|
(1
|
)
|
|
|
43
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43
|
|
|
|
1,287
|
|
Provision for income taxes
|
|
|
447
|
|
|
|
—
|
|
|
|
15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
|
|
462
|
|
Income/(Loss) from continuing operations
|
|
|
798
|
|
|
|
(1
|
)
|
|
|
28
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28
|
|
|
|
825
|
|
Other disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on vehicles subject to operating leases
|
|
|
3,018
|
|
|
|
182
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,200
|
|
Interest expense
|
|
|
2,790
|
|
|
|
1,192
|
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
3,969
|
|
Provision for credit losses
|
|
|
693
|
|
|
|
200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
893
|
|
Finance receivables and net investment in operating leases
|
|
|
70,906
|
|
|
|
23,493
|
|
|
|
—
|
|
|
|
(86
|
)
|
|
|
(1,830
|
)
|
|
|
(1,916
|
)
|
|
|
92,483
|
|
Total assets
|
|
|
95,447
|
|
|
|
31,228
|
|
|
|
—
|
|
|
|
(53
|
)
|
|
|
(1,830
|
)
|
|
|
(1,883
|
)
|
|
|
124,792
|
|
(a)
|
Total Revenue represents
Total financing revenue, Insurance premiums earned, net
and
Other income, net.
|
(b)
|
North America segment income before income taxes includes a net gain of $316 million related to unhedged currency exposure primarily from cross-border intercompany lending.
|
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 16. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies consist primarily of lease commitments, guarantees and indemnifications, and litigation and claims.
The carrying value of recorded liabilities related to guarantees are not material. We have estimated the probability of payment for each guarantee to be remote and have not recorded any loss accruals. At September 30, 2010 and December 31, 2009, the following guarantees and indemnifications were issued and outstanding:
Guarantees of certain obligations of unconsolidated and other affiliates
. In some cases, we have guaranteed debt and other financial obligations of unconsolidated affiliates, including 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 $173 million and $182 million at September 30, 2010 and December 31, 2009, respectively. Of these values, $46 million and $49 million at September 30, 2010 and December 31, 2009, respectively, was counter-guaranteed by Ford to us.
FCE Bank plc (“FCE”) has also guaranteed obligations of Ford in Romania pursuant to three guarantees with maximum potential payments of $527 million. Two of the guarantees have been fully collateralized by $493 million of cash received from Blue Oval Holdings, a Ford U.K. subsidiary. This cash is available for use in FCE’s daily operations, and is recorded as
Debt
. The third guarantee of $34 million is not collateralized by Blue Oval Holdings but is counter-guaranteed by Ford. The expiration date of the guarantees is August 2011 and they could terminate on payment and/or cancellation of the obligations by Ford. A payment to the guaranteed party would be triggered by failure of Ford to fulfill its obligations covered by the guarantees.
Guarantees of obligations to Ford
. We have guaranteed $139 million and $130 million of third-party obligations payable to Ford Brazil at September 30, 2010 and December 31, 2009, respectively. 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 Brazil 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 relating to 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 generally would be triggered by a breach of terms of the contract or by a third-party claim. We are also party to numerous indemnifications which 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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Third Quarter 2010 Compared with Third Quarter 2009
In the third quarter of 2010, our net income was $497 million, an increase of $70 million compared with a year ago. On a pre-tax basis, we earned $766 million in the third quarter of 2010, an increase of $89 million compared with a year ago. The increase in pre-tax earnings primarily reflected:
|
•
|
A lower provision for credit losses primarily related to improved charge-off performance (about $150 million);
|
|
•
|
Improved residual performance on returned vehicles due to higher auction values (about $60
million);
|
|
•
|
The non-recurrence of a valuation allowance for finance receivables classified as held-for-sale at September 30, 2009 related to the sale of our Australia retail portfolio on October 1, 2009 (about $50 million); and
|
|
•
|
Lower operating costs (about $30
million).
|
These factors were offset partially by:
|
•
|
Lower volume primarily related to lower average receivables (about $90 million);
|
|
•
|
The non-recurrence of net gains related to unhedged currency exposure primarily from cross-border intercompany lending (about $65 million); and
|
|
•
|
The non-recurrence of net gains related to market valuation adjustments to derivatives, shown as unallocated risk management in the table below ($51 million).
|
Results of our operations by business segment and unallocated risk management for the third quarter of 2010 and 2009 are shown below:
|
|
Third Quarter
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
Over/(Under)
2009
|
|
|
|
(in millions)
|
|
Income/(Loss) before income taxes
|
|
|
|
|
|
|
|
|
|
North America Segment
|
|
$
|
691
|
|
|
$
|
650
|
|
|
$
|
41
|
|
International Segment
|
|
|
92
|
|
|
|
(7
|
)
|
|
|
99
|
|
Unallocated risk management
|
|
|
(17
|
)
|
|
|
34
|
|
|
|
(51
|
)
|
Income before income taxes
|
|
|
766
|
|
|
|
677
|
|
|
|
89
|
|
Provision for income taxes
|
|
|
269
|
|
|
|
250
|
|
|
|
19
|
|
Net income
|
|
$
|
497
|
|
|
$
|
427
|
|
|
$
|
70
|
|
The increase in North America Segment pre-tax earnings primarily reflected a lower provision for credit losses, improved residual performance on returned vehicles, and lower operating costs. These factors were offset partially by lower volume and the non-recurrence of net gains related to unhedged currency exposure.
The improvement in International Segment pre-tax results primarily reflected the non-recurrence of a loss in the third quarter of 2009 related to the sale of the Australia retail portfolio and a lower provision for credit losses.
The change in unallocated risk management reflected the non-recurrence of net gains related to market valuation adjustments to derivatives. For additional information on our unallocated risk management, refer to Note 15 of our Notes to the Financial Statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
First Nine Months 2010 Compared with First Nine Months 2009
In the first nine months of 2010, our net income was about $1.6 billion, an increase of $754 million compared with a year ago. On a pre-tax basis, we earned about $2.5 billion in the first nine months of 2010, an increase of about $1.2
billion compared with a year ago. The increase in pre-tax earnings primarily reflected:
|
•
|
A lower provision for credit losses primarily related to a lower credit loss reserve and improved charge-off performance (about $1.1 billion);
|
|
•
|
Improved residual performance on returned vehicles and lower depreciation expense for leased vehicles due to higher auction values (about $640
million);
|
|
•
|
Lower operating costs (about $100
million);
|
|
•
|
Higher
financing margin primarily attributable to lower borrowing costs
(about $80
million); and
|
|
•
|
The non-recurrence of a valuation allowance for finance receivables classified as held-for-sale at September 30, 2009 related to the sale of our Australia retail portfolio on October 1, 2009 (about $50 million).
|
These factors were offset partially by:
|
•
|
Lower volume primarily related to lower average receivables (about $350 million);
|
|
•
|
The non-recurrence of net gains related to unhedged currency exposure primarily from cross-border intercompany lending (about $320 million);
|
|
•
|
Higher net losses related to debt repurchases (about $85
million); and
|
|
•
|
The non-recurrence of net gains related to market valuation adjustments to derivatives, shown as unallocated risk management in the table below ($50
million).
|
Results of our operations by business segment and unallocated risk management for the first nine months of 2010 and 2009 are shown below:
|
|
First Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
Over/(Under)
2009
|
|
|
|
(in millions)
|
|
Income/(Loss) before income taxes
|
|
|
|
|
|
|
|
|
|
North America Segment
|
|
$
|
2,224
|
|
|
$
|
1,245
|
|
|
$
|
979
|
|
International Segment
|
|
|
265
|
|
|
|
(1
|
)
|
|
|
266
|
|
Unallocated risk management
|
|
|
(7
|
)
|
|
|
43
|
|
|
|
(50
|
)
|
Income before income taxes
|
|
|
2,482
|
|
|
|
1,287
|
|
|
|
1,195
|
|
Provision for income taxes and Gain on disposal of discontinued operations
|
|
|
901
|
|
|
|
460
|
|
|
|
441
|
|
Net income
|
|
$
|
1,581
|
|
|
$
|
827
|
|
|
$
|
754
|
|
The increase in North America Segment pre-tax earnings primarily reflected a lower provision for credit losses, improved residual performance on returned vehicles and lower depreciation expense for leased vehicles due to higher auction values, lower operating costs, and higher financing margin. These factors were offset partially by lower volume, the non-recurrence of net gains related to unhedged currency exposure primarily from cross-border intercompany lending, and higher net losses related to debt repurchases.
The increase in International Segment pre-tax results primarily reflected a lower provision for credit losses, the non-recurrence of a loss in the third quarter of 2009 related to the sale of the Australia retail portfolio, higher financing margin, and improved performance on residual based products. These factors were offset partially by lower volume.
The change in unallocated risk management reflected the non-recurrence of net gains related to market valuation adjustments to derivatives.
Item 2. Management’s 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 retail and lease vehicles are shown below:
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
North America Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
178
|
|
|
|
161
|
|
|
|
534
|
|
|
|
449
|
|
Canada
|
|
|
34
|
|
|
|
15
|
|
|
|
79
|
|
|
|
68
|
|
Total North America Segment
|
|
|
212
|
|
|
|
176
|
|
|
|
613
|
|
|
|
517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
77
|
|
|
|
112
|
|
|
|
262
|
|
|
|
358
|
|
Other international
|
|
|
9
|
|
|
|
11
|
|
|
|
26
|
|
|
|
37
|
|
Total International Segment
|
|
|
86
|
|
|
|
123
|
|
|
|
288
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract placement volume
|
|
|
298
|
|
|
|
299
|
|
|
|
901
|
|
|
|
912
|
|
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:
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing share - Ford, Lincoln and Mercury
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
32
|
%
|
|
|
30
|
%
|
|
|
32
|
%
|
|
|
30
|
%
|
Wholesale
|
|
|
81
|
|
|
|
80
|
|
|
|
81
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing share - Ford
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
27
|
%
|
|
|
27
|
%
|
|
|
25
|
%
|
|
|
27
|
%
|
Wholesale
|
|
|
99
|
+
|
|
|
99
|
|
|
|
99
|
|
|
|
99
|
|
North America Segment
In the third quarter of 2010, our total contract placement volumes were 212,000, up 36,000 contracts from a year ago. This increase primarily reflected higher sales of new Ford, Lincoln and Mercury vehicles and higher Ford, Lincoln and Mercury financing share. Higher Ford, Lincoln and Mercury financing share was primarily explained by changes in Ford’s marketing programs that favored us.
In the first nine months of 2010, our total contract placement volumes were 613,000, up 96,000 contracts from a year ago, reflecting the causal factors described above.
International Segment
In
the third quarter of 2010, our total contract placement volumes were 86,000, down 37,000 contracts from a year ago. This decrease primarily reflected the transition of Jaguar, Land Rover, Mazda, and Volvo financing to other finance providers, the non-recurrence of government vehicle scrappage programs in Europe, and the transition of Mexico’s retail financing business to another finance provider.
In the first nine months of 2010, our total contract placement volumes were 288,000,
down 107,000 contracts from a year ago reflecting the causal factors described above.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Financial Condition
Finance Receivables and Operating Leases
Our finance receivables and operating leases are shown below:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in billions)
|
|
Receivables – On-Balance Sheet
|
|
|
|
|
|
|
Finance receivables
|
|
|
|
|
|
|
North America Segment
|
|
|
|
|
|
|
Retail installment
|
|
$
|
39.7
|
|
|
$
|
42.3
|
|
Wholesale
|
|
|
12.9
|
|
|
|
13.3
|
|
Other
|
|
|
1.9
|
|
|
|
1.9
|
|
Total North America Segment – finance receivables (a)
|
|
|
54.5
|
|
|
|
57.5
|
|
International Segment
|
|
|
|
|
|
|
|
|
Retail installment
|
|
|
11.4
|
|
|
|
14.0
|
|
Wholesale
|
|
|
8.6
|
|
|
|
9.1
|
|
Other
|
|
|
0.5
|
|
|
|
0.5
|
|
Total International Segment – finance receivables (a)
|
|
|
20.5
|
|
|
|
23.6
|
|
Unearned interest supplements
|
|
|
(2.0
|
)
|
|
|
(1.9
|
)
|
Allowance for credit losses
|
|
|
(0.9
|
)
|
|
|
(1.3
|
)
|
Finance receivables, net
|
|
|
72.1
|
|
|
|
77.9
|
|
Net investment in operating leases (a)
|
|
|
10.5
|
|
|
|
14.6
|
|
Total receivables – on-balance sheet (b)
|
|
$
|
82.6
|
|
|
$
|
92.5
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
Total receivables – managed (c)
|
|
$
|
84.6
|
|
|
$
|
94.5
|
|
Total receivables – serviced (d)
|
|
|
84.6
|
|
|
|
94.6
|
|
|
|
|
|
|
|
|
|
|
(a)
|
At September 30, 2010 and December 31, 2009, includes finance receivables before allowance for credit losses of $57.5 billion and $64.4 billion, respectively, that have been sold for legal purposes in securitization transactions, but continue to be included in our financial statements. In addition, at September 30, 2010 and December 31, 2009, includes net investment in operating leases before allowance for credit losses of $6.8 billion and $10.4 billion, respectively, that have been included in securitization transactions, but continue to be included in our financial statements. These underlying securitized assets are available only for payment of the debt and 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. We hold the right to the excess cash flows not needed to pay the debt and other obligations issued or arising in each of these securitization transactions. For additional information on our securitization transactions, refer to the “Funding” section of Item 2 and Notes 5 and 6 of our Notes to the Financial Statements.
|
(b)
|
Includes allowance for credit losses of about $1 billion and $1.5 billion at September 30, 2010 and December 31, 2009, respectively.
|
(c)
|
Includes on-balance sheet receivables, excluding unearned interest supplements related to finance receivables of about $2 billion and $1.9 billion at September 30, 2010 and December 31, 2009, respectively; and includes off-balance sheet retail receivables of about $100 million at December 31, 2009.
|
(d)
|
Includes managed receivables and receivables sold in whole-loan sale transactions where we retain no interest, but which we continue to service of about $100 million at December 31, 2009.
|
Receivables decreased from year-end 2009, primarily reflecting the transition of Jaguar, Land Rover, Mazda, and Volvo financing to other finance providers and lower industry and financing volumes in 2009 and 2010 compared with prior years. At September 30, 2010, the Jaguar, Land Rover, Mazda, and Volvo financing portfolio represented about 5% of our managed receivables. In addition, the Mercury financing portfolio represented about 3% of our managed receivables at September 30, 2010. These percentages will decline over time.
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. The amount of unearned interest supplements for finance receivables was about $2 billion at September 30, 2010, compared with $1.9 billion at December 31, 2009 included in
Finance receivables, net.
The amount of unearned interest supplements and residual support payments for net investment in operating leases was $878 million at September 30, 2010, compared with $1.1 billion at December 31, 2009 included in
Other liabilities and deferred income
.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
At September 30, 2010, in the United States and Canada, Ford is obligated to pay us $381 million of interest supplements and $59 million of residual value support payments over the terms of the related finance contracts and operating leases, compared with about $1 billion of interest supplements and $180 million of residual value support at December 31, 2009, in each case for contracts purchased prior to January 1, 2008. The unpaid interest supplements and residual value support payment 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.
Credit Risk
Credit risk is the possibility of loss from a customer’s or dealer’s 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 included 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 purchasing retail finance and lease contracts, we use a proprietary scoring system that classifies contracts using several factors, such as credit bureau information, credit bureau scores (e.g., FICO score), customer characteristics, and contract characteristics. In addition to our proprietary scoring system, we consider other factors, such as employment history, financial stability, and capacity to pay. As of September 30, 2010, about 5% 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 2009.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Credit Loss Metrics
Worldwide
The following table shows worldwide charge-offs (credit losses, net of recoveries) 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.
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in millions)
|
|
Charge-offs – On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
$
|
90
|
|
|
$
|
204
|
|
|
$
|
312
|
|
|
$
|
774
|
|
Wholesale
|
|
|
1
|
|
|
|
33
|
|
|
|
1
|
|
|
|
73
|
|
Other
|
|
|
4
|
|
|
|
3
|
|
|
|
1
|
|
|
|
10
|
|
Total charge-offs – on-balance sheet
|
|
$
|
95
|
|
|
$
|
240
|
|
|
$
|
314
|
|
|
$
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss-to-Receivables Ratios – On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
0.57
|
%
|
|
|
1.04
|
%
|
|
|
0.64
|
%
|
|
|
1.28
|
%
|
Wholesale
|
|
|
0.01
|
|
|
|
0.74
|
|
|
|
0.01
|
|
|
|
0.47
|
|
Total loss-to-receivables ratio (including other) – on-balance sheet
|
|
|
0.44
|
%
|
|
|
0.97
|
%
|
|
|
0.47
|
%
|
|
|
1.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs – managed (in millions)
|
|
$
|
95
|
|
|
$
|
241
|
|
|
$
|
314
|
|
|
$
|
862
|
|
Total loss-to-receivables ratio (including other) – managed
|
|
|
0.44
|
%
|
|
|
0.97
|
%
|
|
|
0.47
|
%
|
|
|
1.10
|
%
|
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 charge-offs. 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.
In the third quarter of 2010, charge-offs and loss-to-receivables ratios decreased from a year ago primarily reflecting lower losses in the United States and Europe. Charge-offs in the United States decreased due to lower repossessions and lower severity. Charge-offs in Europe decreased primarily reflecting lower wholesale losses in Germany and lower losses in Spain.
In the first nine months of 2010, charge-offs and loss-to-receivables ratios decreased from a year ago primarily reflecting lower losses in the United States and Europe. Charge-offs in the United States decreased due to lower repossessions, lower severity, and lower wholesale and dealer loan net losses. Charge-offs in Europe decreased primarily reflecting lower losses in Germany and Spain.
Item 2. Management’s 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 68% of our worldwide on-balance sheet portfolio of retail installment receivables and net investment in operating leases at September 30, 2010. In the third quarter of 2010, on-balance sheet charge-offs were lower compared to the same period a year ago primarily due to lower repossessions and lower severity. Severity was lower by $700 per unit; more than explained by improvements in auction values in the used vehicle market.
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs (in millions)
|
|
$
|
60
|
|
|
$
|
136
|
|
|
$
|
202
|
|
|
$
|
485
|
|
Loss-to-receivables ratio
|
|
|
0.59
|
%
|
|
|
1.15
|
%
|
|
|
0.65
|
%
|
|
|
1.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Metrics — Serviced
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repossessions (in thousands)
|
|
|
16
|
|
|
|
24
|
|
|
|
50
|
|
|
|
71
|
|
Repossession ratio (a)
|
|
|
2.46
|
%
|
|
|
3.15
|
%
|
|
|
2.47
|
%
|
|
|
2.96
|
%
|
Severity (b)
|
|
$
|
6,600
|
|
|
$
|
7,300
|
|
|
$
|
6,900
|
|
|
$
|
8,400
|
|
New bankruptcy filings (in thousands)
|
|
|
10
|
|
|
|
13
|
|
|
|
32
|
|
|
|
36
|
|
Over-60 day delinquency ratio (c)
|
|
|
0.16
|
%
|
|
|
0.24
|
%
|
|
|
0.15
|
%
|
|
|
0.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs – managed (in millions)
|
|
$
|
60
|
|
|
$
|
136
|
|
|
$
|
202
|
|
|
$
|
487
|
|
Loss-to-receivables ratio – managed
|
|
|
0.59
|
%
|
|
|
1.15
|
%
|
|
|
0.65
|
%
|
|
|
1.31
|
%
|
(a)
|
Repossessions as a percent of the average number of accounts outstanding during the periods.
|
(b)
|
Average loss per disposed repossession.
|
(c)
|
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 2009 10-K Report.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in millions)
|
|
Allowance for Credit Losses
|
|
|
|
|
|
|
Retail installment and lease
|
|
$
|
908
|
|
|
$
|
1,479
|
|
Wholesale
|
|
|
44
|
|
|
|
43
|
|
Other
|
|
|
21
|
|
|
|
27
|
|
Total allowance for credit losses
|
|
$
|
973
|
|
|
$
|
1,549
|
|
|
|
|
|
|
|
|
|
|
As a Percentage of End-of-Period Receivables
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
1.47
|
%
|
|
|
2.08
|
%
|
Wholesale
|
|
|
0.21
|
|
|
|
0.19
|
|
Total including other
|
|
|
1.14
|
%
|
|
|
1.61
|
%
|
The allowance for credit losses is estimated using a combination of models and management judgment, and is based on such factors as portfolio quality, historical loss performance, and receivable levels. Our allowance for credit losses has decreased from December 31, 2009 consistent with the decrease in charge-offs and includes about $10 million for management’s judgment regarding higher retail loss assumptions in Spain
compared with historical trends used in our models. At December 31, 2009, our allowance for credit losses included about $215 million for management’s judgment regarding higher retail installment and lease repossession assumptions and higher wholesale and dealer loan default assumptions.
Item 2. Management’s 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 2009 10-K Report.
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 97% of our total investment in operating leases at September 30, 2010:
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Placements
|
|
|
29
|
|
|
|
11
|
|
|
|
90
|
|
|
|
46
|
|
Terminations
|
|
|
109
|
|
|
|
95
|
|
|
|
331
|
|
|
|
297
|
|
Returns
|
|
|
72
|
|
|
|
73
|
|
|
|
232
|
|
|
|
249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return rates
|
|
|
66
|
%
|
|
|
77
|
%
|
|
|
70
|
%
|
|
|
84
|
%
|
In the third quarter of 2010, placement volumes were up 18,000 units compared with the same period a year ago, primarily reflecting higher Ford market share and changes in Ford’s marketing programs. Termination volumes increased 14,000 units compared with the same period a year ago, reflecting higher placement volumes in 2007 and the first nine months of 2008. Return volumes decreased 1,000 units compared with the same period a year ago, primarily reflecting lower return rates, consistent with improved auction values relative to our expectations of lease-end values at the time of contract purchase.
In the first nine months of 2010, trends and causal factors compared with the same period a year ago were consistent with those described above.
Item 2. Management’s 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 third quarter 2010 vehicle mix for lease terms comprising 57% of our active Ford, Lincoln and Mercury brand U.S. operating lease portfolio:
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Returns
|
|
|
|
|
|
|
|
|
|
|
|
|
24-Month term
|
|
|
9
|
|
|
|
12
|
|
|
|
38
|
|
|
|
43
|
|
36-Month term
|
|
|
16
|
|
|
|
11
|
|
|
|
55
|
|
|
|
53
|
|
39-Month/Other term
|
|
|
14
|
|
|
|
10
|
|
|
|
36
|
|
|
|
27
|
|
Total returns
|
|
|
39
|
|
|
|
33
|
|
|
|
129
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return rates
|
|
|
61
|
%
|
|
|
70
|
%
|
|
|
66
|
%
|
|
|
81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction Values at Constant Third Quarter 2010 Vehicle Mix
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24-Month term
|
|
$
|
19,030
|
|
|
$
|
19,385
|
|
|
$
|
18,635
|
|
|
$
|
17,780
|
|
36-Month term
|
|
|
16,235
|
|
|
|
15,615
|
|
|
|
15,985
|
|
|
|
14,470
|
|
In the third quarter of 2010, Ford, Lincoln and Mercury brand U.S. return volumes were up 6,000 units compared with the same period a year ago, primarily reflecting higher terminations, offset partially by a lower return rate. Auction values at constant third quarter 2010 mix were down $355 per unit from year ago levels for vehicles under 24-month leases, primarily reflecting high auction values for late model used vehicles in third quarter 2009, consistent with the cash for clunkers program and low new vehicle inventory. Auction values at constant third quarter 2010 mix were up $620 per unit for vehicles under 36-month leases, primarily reflecting the overall auction value improvement in the used vehicle market for older vehicles. Auction values, at constant third quarter 2010 mix, improved compared with the second quarter of 2010 for vehicles under 24-month and 36-month leases by $170 per unit and $70 per unit, respectively.
In the first nine months of 2010, Ford, Lincoln and Mercury brand U.S. return volumes were up 6,000 units compared with the same period a year ago, primarily reflecting higher terminations, offset partially by a lower return rate. Auction values at constant third quarter 2010 mix were up $855 per unit and $1,515 per unit from year ago levels for vehicles under 24-month and 36-month leases, respectively, primarily reflecting the overall auction value improvement in the used vehicle market. Auction values, at constant third quarter 2010 mix, improved compared with the second quarter of 2010 for vehicles under 24-month and 36-month leases by $170 per unit and $70 per unit, respectively. The year-over-year improvement in auction values experienced in the first nine months of 2010 is not expected to continue to the same extent through the end of the year.
Recent lease placement trends will result in a much lower mix of 24-month contracts within Ford Credit’s return volume over the next several quarters. Scheduled termination volume for vehicles under 24-month contracts is near zero for all of 2011, but the mix of 24-month contracts is expected to increase in 2012 to the level seen in 2010.
Item 2. Management’s 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”):
|
·
|
Moody’s Investors Service, Inc. (“Moody’s”); and
|
|
·
|
Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. (“S&P”).
|
The following chart summarizes changes in long-term senior unsecured credit ratings, short-term credit ratings, and the outlook assigned to us by these four NRSROs since year-end 2009:
NRSRO RATINGS
|
|
DBRS
|
Fitch
|
Moody’s
|
S&P
|
Date
|
Long-Term
|
Short-Term
|
Trend
|
Long-Term
|
Short-Term
|
Outlook
|
Long-Term
|
Short-Term
|
Outlook
|
Long-Term
|
Short-Term
|
Outlook
|
Dec. 2009
|
B
|
R-5
|
Stable
|
B
|
C
|
Positive
|
B3
|
NP
|
Review
|
B-
|
NR
|
Stable
|
Jan. 2010
|
B
|
R-5
|
Stable
|
B+
|
B
|
Positive
|
B3
|
NP
|
Review
|
B-
|
NR
|
Stable
|
Mar. 2010
|
B (high)
|
R-4
|
Positive
|
B+
|
B
|
Positive
|
B1
|
NP
|
Review
|
B-
|
NR
|
Stable
|
Apr. 2010
|
B (high)
|
R-4
|
Positive
|
BB-
|
B
|
Positive
|
B1
|
NP
|
Review
|
B-
|
NR
|
Positive
|
May 2010
|
B (high)
|
R-4
|
Positive
|
BB-
|
B
|
Positive
|
Ba3
|
NP
|
Stable
|
B-
|
NR
|
Positive
|
Aug. 2010
|
BB
|
R-4
|
Stable
|
BB-
|
B
|
Stable
|
Ba3
|
NP
|
Stable
|
B+
|
NR
|
Positive
|
Oct. 2010
|
BB
|
R-4
|
Stable
|
BB-
|
B
|
Stable
|
Ba2
|
NP
|
Stable
|
B+*
|
NR
|
Positive
|
|
* S&P assigns FCE Bank plc (“FCE”) a long-term senior unsecured credit rating of BB-, maintaining a one notch differential versus Ford Credit.
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Funding
Overview
Our funding strategy is to maintain sufficient liquidity to meet short-term funding obligations by having a substantial cash balance, committed funding capacity, and access to diverse funding sources. Securitization continues to represent a substantial portion of our funding mix as this market remains more cost effective than unsecured funding and allows us access to a wider investor base given our credit ratings remain below investment grade levels. 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 FCE’s partnering with various institutions in Europe for full service leasing and retail and wholesale financing). We also have an application pending for Federal Deposit Insurance Corporation (“FDIC”) and State of Utah approval for an industrial loan corporation (“ILC”) that could provide a limited source of funding. Additionally, in the second quarter of 2010, we published notice of our intent to apply for a bank charter in Canada.
In the third quarter of 2010, we completed about $5 billion of funding in the securitization markets, including: public U.S. retail and wholesale securitization transactions and a public Canadian retail securitization transaction. We also completed about $3 billion of unsecured funding in the United States, Canada and Europe. Our credit spreads continue to decrease reflecting improving credit profiles of Ford and Ford Credit, strong investor demand for our debt transactions and supportive markets.
At September 30, 2010, we have committed capacity totaling about $35 billion, about $1 billion higher than the second quarter of 2010 as several of our key relationship banks have provided committed facilities to support a variety of markets and asset classes. We renewed about $5 billion of committed capacity in the third quarter of 2010. Our renewal strategy is to optimize capacity and maintain sufficient liquidity to protect our global funding needs. Most of our asset-backed committed facilities enable us to obtain term funding up to the time that the facilities expire. Any outstanding debt at the maturity of the facilities remains outstanding and is repaid as the underlying assets liquidate. Our ability to obtain funding under our committed asset-backed liquidity programs is subject to having a sufficient amount of assets eligible for these programs, and for certain programs, having the ability to obtain derivatives to manage the interest rate risk. For additional information on our committed capacity programs, refer to the “Liquidity” section of Item 7 of Part II of our 2009 10-K Report.
Our funding plan is subject to risks and uncertainties, many of which are beyond our control, including disruption in the capital markets for the types of asset-backed securities used in our asset-backed funding and the effects of regulatory reform efforts on the financial markets. Potential impacts of industry events and legislation on our ability to access debt and derivatives markets, or renew our committed liquidity programs in sufficient amounts and at competitive rates, represents another risk to our funding plan. As a result of such events or legislation, we would need to reduce new originations thereby reducing our ongoing profits and adversely affecting our ability to support the sale of Ford vehicles. For additional information on our projected year-end 2010 managed receivables, refer to the “Outlook” section of Item 2.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
U.S. Financial Industry Regulations
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was enacted July 21, 2010 to reform practices in the financial services industries, including automotive financing and securitization of automotive finance receivables. The Act is subject to significant rulemaking, and we cannot predict the impact of the Act and the resulting regulations on our business until such rulemaking is complete. For additional information on how the Act may impact our business, refer to “Item 1A. Risk Factors”.
Government-Sponsored Securitization Funding Programs
U.S. Federal Reserve’s Term Asset-Backed Securities Loan Facility (“TALF”).
TALF began in March 2009 to make credit available by restoring liquidity in the asset-backed securitization market. TALF expired in March 2010. At September 30, 2010, the outstanding balance of our TALF-eligible asset-backed securities was $8.4 billion, compared with $8.1 billion at December 31, 2009 reflecting issuance of $2.3 billion in the first quarter of 2010 offset partially by amortization of about $2 billion in the first nine months of 2010. The outstanding balance of our TALF-eligible asset-backed securities will decline as the debt continues to amortize and no new securities are issued.
European Central Bank (“ECB”) Open Market Operations
. FCE is eligible to access liquidity through the ECB’s open market operations program. This program allows eligible counterparties to use eligible assets (including asset-backed securities) as collateral for short-term liquidity. During 2010, FCE has not accessed the ECB’s open market operations program for any incremental funding. At September 30, 2010, FCE had $587 million of funding from the ECB relating to asset-backed securities and other marketable securities down from $1.8 billion at December 31, 2009 due to amortization of the debt and the sale of notes in the secondary markets previously posted as collateral for ECB funding. In October, we completed another such sale of notes to reduce the outstanding balance to $205 million.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Funding Portfolio
Our outstanding debt and off-balance sheet securitization transactions were as follows on the dates indicated:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in billions)
|
|
Debt
|
|
|
|
|
|
|
Asset-backed commercial paper (a)
|
|
$
|
6.7
|
|
|
$
|
6.4
|
|
Other asset-backed short-term debt (a)
|
|
|
2.4
|
|
|
|
4.5
|
|
Ford Interest Advantage (b)
|
|
|
4.6
|
|
|
|
3.6
|
|
Other short-term debt
|
|
|
0.9
|
|
|
|
0.9
|
|
Total short-term debt
|
|
|
14.6
|
|
|
|
15.4
|
|
Unsecured long-term debt (including notes
payable within one year)
|
|
|
36.0
|
|
|
|
38.9
|
|
Asset-backed long-term debt (including notes
payable within one year) (a)
|
|
|
37.9
|
|
|
|
42.0
|
|
Total debt
|
|
|
88.5
|
|
|
|
96.3
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Securitization Transactions
|
|
|
|
|
|
|
|
|
Securitized off-balance sheet portfolio
|
|
|
—
|
|
|
|
0.1
|
|
Retained interest
|
|
|
—
|
|
|
|
0.0
|
|
Total off-balance sheet securitization transactions
|
|
|
—
|
|
|
|
0.1
|
|
Total debt plus off-balance sheet securitization transactions
|
|
$
|
88.5
|
|
|
$
|
96.4
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
Securitized funding to managed receivables
|
|
|
56
|
%
|
|
|
56
|
%
|
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
|
|
|
39
|
|
|
|
39
|
|
(a)
|
Obligations issued in securitization transactions that are payable only out of collections on the underlying securitized assets and related enhancements.
|
(b)
|
The Ford Interest Advantage program consists of our floating rate demand notes.
|
At September 30, 2010, unsecured long-term debt (including notes payable within one year) was down about $3 billion from year-end 2009, primarily reflecting about $9 billion of debt maturities, repurchases, and calls, offset partially by about $6 billion of new unsecured long-term debt issuance. Remaining unsecured long-term debt maturities were as follows: 2010 — about $700 million; 2011 — about $9 billion; 2012 — about $7 billion; and the balance thereafter.
At September 30, 2010, asset-backed long-term debt (including notes payable within one year) was down about $4 billion from year-end 2009, reflecting asset-backed long-term debt amortization in excess of issuance.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
At September 30, 2010, all of our securitization transactions are included in our financial statements and we expect our future securitization transactions to be on-balance sheet. We believe on-balance sheet arrangements are more transparent to our investors. These underlying securitized assets are available only for payment of the debt and 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. We hold the right to the excess cash flows not needed to pay the debt and other obligations issued or arising in each of these securitization transactions. This debt is not our legal obligation or the legal obligation of our other subsidiaries.
The following table shows worldwide cash and cash equivalents and marketable securities, receivables, and related debt by segment and product for our on-balance sheet securitization transactions:
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Cash and
Cash
Equivalents
and
Marketable
Securities (a)
|
|
|
Finance
Receivables
and Net
Investment in
Operating
Leases (b)
|
|
|
Related
Debt
|
|
|
Cash and
Cash
Equivalents
|
|
|
Finance
Receivables
and Net
Investment in
Operating
Leases (b)
|
|
|
Related
Debt
|
|
|
|
(in billions)
|
|
Finance Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment
|
|
$
|
2.1
|
|
|
$
|
30.8
|
|
|
$
|
25.7
|
|
|
$
|
2.0
|
|
|
$
|
35.0
|
|
|
$
|
28.3
|
|
Wholesale
|
|
|
0.1
|
|
|
|
12.1
|
|
|
|
8.0
|
|
|
|
0.1
|
|
|
|
12.6
|
|
|
|
6.3
|
|
Total North America Segment
|
|
|
2.2
|
|
|
|
42.9
|
|
|
|
33.7
|
|
|
|
2.1
|
|
|
|
47.6
|
|
|
|
34.6
|
|
International Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment
|
|
|
1.3
|
|
|
|
8.5
|
|
|
|
6.5
|
|
|
|
1.4
|
|
|
|
9.9
|
|
|
|
7.4
|
|
Wholesale
|
|
|
0.3
|
|
|
|
6.1
|
|
|
|
3.1
|
|
|
|
0.4
|
|
|
|
6.9
|
|
|
|
4.3
|
|
Total International Segment
|
|
|
1.6
|
|
|
|
14.6
|
|
|
|
9.6
|
|
|
|
1.8
|
|
|
|
16.8
|
|
|
|
11.7
|
|
Total finance receivables
|
|
|
3.8
|
|
|
|
57.5
|
|
|
|
43.3
|
|
|
|
3.9
|
|
|
|
64.4
|
|
|
|
46.3
|
|
Net investment in operating leases
|
|
|
0.9
|
|
|
|
6.8
|
|
|
|
3.7
|
|
|
|
1.3
|
|
|
|
10.4
|
|
|
|
6.6
|
|
Total on-balance sheet arrangements
|
|
$
|
4.7
|
|
|
$
|
64.3
|
|
|
$
|
47.0
|
|
|
$
|
5.2
|
|
|
$
|
74.8
|
|
|
$
|
52.9
|
|
(a)
|
Includes marketable securities totaling $116 million, which are pledged as collateral in a funding arrangement with the ECB.
|
(b)
|
Before allowances for credit losses. Unearned interest supplements are excluded from securitization transactions.
|
For additional information on our securitization transactions, refer to Notes 5 and 6 of our Notes to the Financial Statements.
Item 2. Management’s 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 2009 and through October 31, 2010, and our planned issuances for full year 2010:
|
|
2010
|
|
|
|
|
|
|
Full Year
|
|
|
Through
|
|
|
2009
|
|
|
|
Forecast
|
|
|
October 31,
|
|
|
Actual
|
|
|
|
(in billions)
|
|
Public Term Funding
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
$
|
6
– 7
|
|
|
$
|
6
|
|
|
$
|
5
|
|
Securitization transactions (a)
|
|
|
10
–
12
|
|
|
|
10
|
|
|
|
15
|
|
Total public term funding
|
|
$
|
16
–
19
|
|
|
$
|
16
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Term Funding
(b)
|
|
$
|
8
–10
|
|
|
$
|
8
|
|
|
$
|
11
|
|
(a)
|
Includes public securitization transactions and securitization transactions issued under Rule 144A of the Securities Act of 1933.
|
(b)
|
Includes private term debt, securitization transactions, and other term funding; excludes sales to Ford Credit’s on-balance sheet asset-backed commercial paper program (“FCAR”).
|
Through October 31, 2010, we completed about $16 billion of public term funding transactions including about $5 billion of retail asset-backed securitization transactions; about $3 billion of wholesale asset-backed securitization transactions; about $2 billion of lease asset-backed securitization transactions; and about $6 billion of unsecured issuances.
Through October 31, 2010, we completed about $8 billion of private term funding transactions (excluding our
on-balance sheet asset-backed commercial paper program), primarily reflecting retail, lease, and wholesale
asset-backed securitization transactions.
Item 2. Management’s 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, FCAR program, and credit facilities), less asset-backed capacity in excess of eligible receivables and cash and cash equivalents required to support on-balance sheet securitization transactions. We have multiple sources of liquidity, including committed asset-backed funding capacity.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in billions)
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and marketable securities (a)
|
|
$
|
19.8
|
|
|
$
|
17.3
|
|
|
|
|
|
|
|
|
|
|
Committed liquidity programs
|
|
$
|
25.1
|
|
|
$
|
23.2
|
|
Asset-backed commercial paper (“FCAR”)
|
|
|
9.0
|
|
|
|
9.3
|
|
Credit facilities
|
|
|
1.1
|
|
|
|
1.3
|
|
Committed capacity
|
|
$
|
35.2
|
|
|
$
|
33.8
|
|
Committed capacity and cash
|
|
$
|
55.0
|
|
|
$
|
51.1
|
|
Less: Capacity in excess of eligible receivables
|
|
|
(8.2
|
)
|
|
|
(6.5
|
)
|
Less: Cash, cash equivalents, and marketable securities to support on-balance sheet securitization transactions
|
|
|
(4.7
|
)
|
|
|
(5.2
|
)
|
Liquidity
|
|
$
|
42.1
|
|
|
$
|
39.4
|
|
Less: Utilization
|
|
|
(17.5
|
)
|
|
|
(18.3
|
)
|
Liquidity available for use
|
|
$
|
24.6
|
|
|
$
|
21.1
|
|
(a)
|
Excludes marketable securities related to insurance activities.
|
At September 30, 2010, committed capacity and cash shown above totaled $55 billion, of which $42.1 billion could be utilized (after adjusting for capacity in excess of eligible receivables of $8.2 billion and cash required to support on-balance sheet securitization transactions of $4.7 billion). At September 30, 2010, $17.5 billion was utilized, leaving $24.6 billion available for use (including $15.1 billion of cash, cash equivalents, and marketable securities, but excluding marketable securities related to insurance activities, and cash, cash equivalents, and marketable securities to support on-balance sheet securitization transactions).
At September 30, 2010, our liquidity available for use was $3.5 billion higher than year-end 2009. Liquidity available for use was 29% of managed receivables, compared with 22% at year-end 2009. In addition to the $24.6 billion of liquidity available for use, the $8.2 billion of capacity in excess of eligible receivables provides us with an alternative for funding future purchases or originations and gives us flexibility to shift capacity to alternate markets and asset-classes.
Cash, Cash Equivalents, and Marketable Securities
. At September 30, 2010, our cash, cash equivalents, and marketable securities (excluding marketable securities related to insurance activities) totaled $19.8 billion, compared with $17.3 billion at year-end 2009. 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 U.S. Treasury obligations, federal agency securities, bank time deposits with investment grade institutions, corporate investment-grade securities, A-1/P-1 (or higher) rated commercial paper, debt obligations of certain foreign governments, foreign government agencies and supranational institutions, and money market funds that invest primarily in federal agency securities, U.S. Treasury bills, and other short-term investment grade securities. The average maturity of these investments ranges from 90 days to up to one-year and is adjusted based on market conditions and liquidity needs. We monitor our cash levels and average maturity on a daily basis. Cash, cash equivalents, and marketable securities include amounts to be used only to support our on-balance sheet securitization transactions of $4.7 billion at September 30, 2010 and $5.2 billion at December 31, 2009.
Our substantial liquidity and cash balance have provided the opportunity to selectively repurchase our unsecured debt on the open market. In the third quarter of 2010, we repurchased about $800 million and called about $200 million of our near-term unsecured debt maturities.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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, lease or wholesale assets for proceeds of up to $25.1 billion at September 30, 2010 ($11.1 billion retail, $9.2 billion wholesale and $4.8 billion supported by various retail, lease or wholesale assets) of which about $7.5 billion are commitments to FCE. These committed liquidity programs have varying maturity dates, with $18.3 billion having maturities within the next twelve months (of which $3.5 billion relates to FCE commitments), and the remaining balance having maturities between October 2011 and March 2013. We plan to achieve capacity renewals consistent with our lower receivables balance and to optimize capacity and maintain sufficient liquidity to protect our global funding needs. Our ability to obtain funding under these programs is subject to having a sufficient amount of assets eligible for these programs as well as our ability to obtain interest rate hedging arrangements for certain securitization transactions. Our capacity in excess of eligible receivables would protect us against the risk of lower than planned renewal rates. At September 30, 2010, $10.3 billion of these commitments were in use. 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.
Credit Facilities
Our credit facilities and asset-backed commercial paper lines were as follows on the dates indicated:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in billions)
|
|
Credit Facilities
|
|
|
|
|
|
|
Ford Credit bank lines
|
|
$
|
0.0
|
|
|
$
|
0.0
|
|
FCE bank lines
|
|
|
1.0
|
|
|
|
1.3
|
|
Utilized amounts
|
|
|
(0.5
|
)
|
|
|
(0.7
|
)
|
Available credit facilities
|
|
$
|
0.5
|
|
|
$
|
0.6
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Commercial Paper Lines
|
|
|
|
|
|
|
|
|
FCAR asset-backed commercial paper lines
|
|
$
|
9.0
|
|
|
$
|
9.3
|
|
At September 30, 2010, we and our majority-owned subsidiaries, including FCE, had over $1 billion of contractually-committed unsecured credit facilities with financial institutions. We had $547 million available for use, of which $488 million expire in 2011 and $59 million expire in 2012. Almost all of our contractually committed unsecured credit facilities are FCE worldwide credit facilities and may be used, at FCE’s option, by any of FCE’s direct or indirect, majority-owned subsidiaries. FCE will guarantee any such borrowings. All of the worldwide credit facilities are free of material adverse change clauses, restrictive financial covenants, and credit rating triggers that could limit our ability to obtain funding.
In addition, at September 30, 2010, we had about $9 billion of contractually committed liquidity facilities provided by banks to support our FCAR program, of which $4.3 billion expire in 2011, $355 million expire in 2012, and $4.4 billion expire in 2013. 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 September 30, 2010, about $9 billion of FCAR’s bank liquidity facilities were available to support FCAR’s asset-backed commercial paper, subordinated debt, or FCAR’s purchase of our asset-backed securities. At September 30, 2010, the outstanding commercial paper balance for the FCAR program was $6.7 billion
Liquidity Risks
Refer to the “Liquidity” section of Item 7 of Part II of our 2009 10-K Report for a list of factors that could affect our liquidity.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements (off-balance sheet securitization transactions and whole-loan sale transactions, excluding sales of businesses and liquidating portfolios) since the first quarter of 2007, which is consistent with our plan to execute on-balance sheet securitization transactions. For additional information on our off-balance sheet arrangements, refer to Note 5 of our Notes to the Financial Statements.
Leverage
We
use leverage, or the debt-to-equity ratio, to make various business decisions, including evaluating and establishing pricing for retail, wholesale, and lease financing, and assessing our capital structure. We refer to our shareholder’s interest as equity. We calculate leverage on a financial statement basis and on a managed basis using the following formulas:
|
|
|
|
|
|
|
|
|
|
|
Financial
Statement
Leverage
|
=
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
Interest in
|
|
|
|
|
|
|
|
|
Securitized
|
|
Securitized
|
|
Cash,
|
|
Adjustments for
|
|
|
|
|
Off-balance
|
|
Off-balance
|
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
|
Accounting
|
Managed Leverage
|
=
|
Total Debt
|
+
|
Receivables
|
-
|
Receivables
Equity
|
-
-
|
Securities (a)
Adjustments for
|
-
|
on Total Debt (b)
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
|
Accounting
on Equity (b)
|
|
|
(a)
|
Excludes marketable securities related to insurance activities.
|
(b)
|
Primarily related to market valuation adjustments to derivatives due to movements in interest rates. Adjustments to debt are related to designated fair value hedges and adjustments to equity are related to retained earnings.
|
The following table shows the calculation of our financial statement leverage (in billions, except for ratios):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
88.5
|
|
|
$
|
96.3
|
|
Equity
|
|
|
10.9
|
|
|
|
11.0
|
|
Financial statement leverage (to 1)
|
|
|
8.1
|
|
|
|
8.8
|
|
The following table shows the calculation of our managed leverage (in billions, except for ratios):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
88.5
|
|
|
$
|
96.3
|
|
Securitized off-balance sheet receivables outstanding
|
|
|
—
|
|
|
|
0.1
|
|
Retained interest in securitized off-balance sheet receivables
|
|
|
—
|
|
|
|
0.0
|
|
Adjustments for cash, cash equivalents, and marketable securities (a)
|
|
|
(19.8
|
)
|
|
|
(17.3
|
)
|
Adjustments for derivative accounting (b)
|
|
|
(0.4
|
)
|
|
|
(0.2
|
)
|
Total adjusted debt
|
|
$
|
68.3
|
|
|
$
|
78.9
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
10.9
|
|
|
$
|
11.0
|
|
Adjustments for derivative accounting (b)
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
Total adjusted equity
|
|
$
|
10.8
|
|
|
$
|
10.8
|
|
|
|
|
|
|
|
|
|
|
Managed leverage (to 1)
|
|
|
6.3
|
|
|
|
7.3
|
|
(a)
|
Excludes marketable securities related to insurance activities.
|
(b)
|
Primarily related to market valuation adjustments to derivatives due to movements in interest rates. Adjustments to debt are related to designated fair value hedges and adjustments to equity are related to retained earnings.
|
We plan our managed leverage by considering prevailing market conditions and the risk characteristics of our business. At September 30, 2010, our managed leverage was 6.3 to 1, compared with 7.3 to 1 at December 31, 2009. Based on our present analysis of the quality of our assets, we believe the appropriate leverage would be in the range of 10-11 to 1. Longer term, we expect to return our leverage to the appropriate level consistent with our analysis of the quality of the assets. Our managed leverage is significantly below the threshold of 11.5 to 1 set forth in the Amended and Restated Support Agreement with Ford. In the third quarter of 2010, we paid a $1 billion cash distribution to our parent, Ford Holdings LLC. For additional information on our planned distributions, refer to the “Outlook” section.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Accounting Standards Issued Not Yet Adopted
In July 2010, the Financial Accounting Standards Board (“FASB”) issued a new standard requiring expanded disclosures about the credit quality of financing receivables and the allowance for credit losses. The new standard requires disaggregation of disclosures by portfolio segment or by class of financing receivable, and provides additional implementation guidance for determining the level of disaggregation of information. The standard also requires new disclosures on credit quality indicators, past due information, and modifications of financing receivables. The standard is effective for us as of December 31, 2010.
Outlook
We expect profits in the fourth quarter of 2010 to be lower compared with recent quarters because of smaller anticipated improvements in the provision for credit losses and depreciation expense for leased vehicles. At year-end 2010, we anticipate managed receivables to be in the range of $80 billion to $85 billion. Subject to our funding plan risks previously described in the “Funding – Overview” section, we expect that a significant portion
of our funding will consist of securitization transactions and expect the funding structure required for this level of managed receivables at year-end 2010 to be the following (in billions, except for percentages):
|
|
December 31,
2010
|
|
Funding Structure
|
|
|
|
Ford Interest Advantage
|
$
|
|
|
~ 5
|
|
|
Asset-backed commercial paper
|
|
|
|
~ 7
|
|
|
Term asset-backed securities
|
|
36
|
|
–
|
40
|
|
Term debt and other
|
|
37
|
|
–
|
40
|
|
Equity
|
|
10
|
|
–
|
11
|
|
Cash, cash equivalents, and marketable securities*
|
|
(15
|
)
|
–
|
(18
|
)
|
Total funding structure
|
$
|
80
|
|
–
|
85
|
|
|
|
|
|
Memo:
|
|
|
|
Securitized funding as a percentage of managed receivables
|
|
55
|
|
–
|
60
|
%
|
|
|
|
|
*
|
Excludes marketable securities related to insurance activities.
|
We expect to pay distributions of about $2.5 billion in 2010, of which $500 million and $1 billion were paid in the first and third quarters, respectively. This is an increase from the $2 billion of planned distributions in 2010 reported in the “Outlook” section of Item 2 of our Quarterly Report on Form 10-Q for the period ended June 30, 2010. The increase in planned distributions is based on our improved profitability and our lower managed leverage.
We will continue to assess future distributions based on our available liquidity and managed leverage objectives.
For the full year 2011, we expect to be solidly profitable but at a lower level than 2010, reflecting primarily the non-recurrence of lower lease depreciation expense and the non-recurrence of allowance for credit loss reductions of the same magnitude as 2010. The non-recurrence of lower lease depreciation expense relates to lower gains associated with recovering a portion of the operating lease impairment from 2008 as fewer leases terminate and the vehicles are sold. Overall, we will have fewer lease vehicles terminating in 2011 compared with 2010, resulting in fewer vehicles sold at a gain. The recovery of the lease impairment when the leases terminate and the vehicles are sold is projected to be about $640 million in 2010 and about $240 million in 2011, and the total lease terminations are projected to decline from about 400,000 in 2010 to 230,000 in 2011. Also, we anticipate the allowance for credit losses will begin to level off in 2011 at about 1% of receivables from 1.14% of receivables at the end of the third quarter of 2010, resulting in smaller reductions in the allowance than we experienced in 2010.
Item 2. Management’s 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:
|
•
|
Declines in industry sales volume, particularly in the United States or Europe, due to financial crisis, recession, geo-political events or other factors;
|
•
|
Decline in Ford’s market share;
|
•
|
Continued or increased price competition for Ford vehicles resulting from industry overcapacity, currency fluctuations or other factors;
|
•
|
An increase in or acceleration of market shift beyond Ford’s current planning assumptions from sales of trucks, medium- and large-sized utilities, or other more profitable vehicles, particularly in the United States;
|
•
|
A return to elevated gasoline prices, as well as the potential for volatile prices or reduced availability;
|
•
|
Lower-than-anticipated market acceptance of new or existing Ford products;
|
•
|
Adverse effects from the bankruptcy, insolvency, or government-funded restructuring of, change in ownership or control of, or alliances entered into by a major competitor;
|
•
|
Economic distress of suppliers may require Ford to provide substantial financial support or take other measures to ensure supplies of components or materials and could increase Ford’s costs, affect Ford’s liquidity, or cause production disruptions;
|
•
|
Work stoppages at Ford or supplier facilities or other interruptions of production;
|
•
|
Single-source supply of components or materials;
|
•
|
Restriction on use of tax attributes from tax law “ownership change”;
|
•
|
The discovery of defects in Ford vehicles resulting in delays in new model launches, recall campaigns or increased warranty costs;
|
•
|
Increased safety, emissions, 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, perceived environmental impacts, or otherwise;
|
•
|
A change in Ford’s 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 Ford’s results from a decrease in or cessation of government incentives related to capital investments;
|
•
|
Adverse effects on Ford’s operations resulting from certain geo-political or other events;
|
•
|
Substantial levels of indebtedness adversely affecting Ford’s 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:
|
•
|
A prolonged disruption of the debt and securitization markets;
|
•
|
Inability to access debt, securitization or derivative markets around the world at competitive rates or in sufficient amounts due to credit rating downgrades, market volatility, market disruption, regulatory requirements or otherwise;
|
•
|
Inability to obtain competitive funding;
|
•
|
Higher-than-expected credit losses;
|
•
|
Adverse effects from the government-supported restructuring of, change in ownership or control of, or alliances entered into by a major competitor;
|
•
|
Increased competition from banks or other financial institutions seeking to increase their share of retail installment 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 laws and regulations resulting in higher costs and/or additional financing restrictions;
|
•
|
Changes in Ford’s operations or changes in Ford’s marketing programs could result in a decline in our financing volumes;
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
•
|
Inability to access public securitization markets in the United States on or after January 24, 2011 due to rating agencies withholding consent to the required use of their credit ratings in registration statements;
|
|
|
General:
|
•
|
Fluctuations in foreign currency exchange rates and interest rates;
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Failure of financial institutions to fulfill commitments under committed credit and liquidity facilities;
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Labor or other constraints on Ford’s or our ability to restructure its or our business;
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Substantial pension and postretirement healthcare and life insurance liabilities impairing Ford’s or our liquidity or financial condition; and
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Worse-than-assumed economic and demographic experience for postretirement benefit plans (e.g., discount rates or investment returns).
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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 2009 10-K Report and Item 1A of Part I of Ford’s 2009 10-K Report.
Other Financial Information
With respect to the unaudited financial information of Ford Motor Credit Company as of September 30, 2010 and for the three- and nine-month periods ended September 30, 2010 and 2009, included in this Form 10-Q, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated November 8, 2010 appearing herein states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited financial information because that report is not a “report” or a “part” of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 change 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 September 30, 2010, all else constant, such an increase in interest rates would increase our pre-tax cash flow by $10 million over the next twelve months, compared with $27 million at December 31, 2009. 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 Company’s 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 September 30, 2010 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 SEC’s 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
There were no changes in internal control over financial reporting during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
In addition to the risk factors applicable to us that are disclosed in “Item 1A. Risk Factors” of our 2009 10-K Report, we have identified the following changes to the reported risks:
Inability to access public securitization markets in the United States on or after January 24, 2011 due to rating agencies withholding consent to the required use of their credit ratings in registration statements.
Issuers in the United States are required to disclose credit ratings assigned to them in registration statements relating to public offerings of asset-backed securities when the offerings are conditioned on minimum ratings. As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted on July 21, 2010, credit rating agencies now must consent to the use of their credit ratings in such registration statements. The credit rating agencies, however, have not been willing to provide such consent. In order to facilitate a transition for asset-backed issuers, on July 22, 2010, the Securities and Exchange Commission granted “no-action” relief by allowing omission of the required credit rating disclosures from registration statements for a temporary period until January 24, 2011. If the credit rating agencies continue to withhold consent after the expiration of the no-action relief, and no further regulatory or legislative relief is available, we would be unable to access the public securitization markets in the United States. Inability to access the U.S. public securitization markets, if protracted, could impact our ability to fund our business efficiently.
ITEM 5. OTHER INFORMATION
We have none to report.
ITEM 6. EXHIBITS
Exhibits: please refer to the
Exhibit Index on page 59.
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.
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934,
the registrant 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: November 8, 2010
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 September 30, 2010, and the related consolidated statement of operations and consolidated statement of comprehensive income for the three-month and nine-month periods ended September 30, 2010 and 2009,
and the
consolidated
statement of cash flows for the nine-month
periods ended
September 30, 2010 and 2009. These interim financial statements are the responsibility of the Company’s 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, 2009, and the related consolidated statements of operations, of shareholder’s interest/equity, and of cash flows for the year then ended (not presented herein), and in our report dated February 25, 2010, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2009, 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
November 8, 2010
FORD MOTOR CREDIT COMPANY LLC
EXHIBIT INDEX
Designation
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Description
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Method of Filing
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Exhibit 12
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Ford Motor Credit Company LLC
and Subsidiaries
Calculation of Ratio of
Earnings to Fixed Charges
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Filed with this Report
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Exhibit 15
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Letter of
PricewaterhouseCoopers LLP, dated November 8, 2010, relating to Unaudited Interim Financial Information
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Filed with this Report
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Exhibit 31.1
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Rule 15d-14(a) Certification of CEO
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Filed with this Report
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Exhibit 31.2
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Rule 15d-14(a) Certification of CFO
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Filed with this Report
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Exhibit 32.1
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Section 1350 Certification of CEO
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Furnished with this Report
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Exhibit 32.2
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Section 1350 Certification of CFO
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Furnished with this Report
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Exhibit 99
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Items 2 - 4 of Part I and Items 1, 2 and 5 of Part II of Ford Motor Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010
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Incorporated herein by reference to Ford Motor Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010. File No. 1-3950.
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Ford Motor Credit Company Llc (NYSE:FCJ)
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Ford Motor Credit Company Llc (NYSE:FCJ)
過去 株価チャート
から 1 2024 まで 1 2025