UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____________________ to ____________________
Commission file number 1-6368
Ford Motor Credit Company LLC
(Exact name of registrant as specified in its charter)
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Delaware
(State of organization)
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38-1612444
(I.R.S. employer identification no.)
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One American Road, Dearborn, Michigan
(Address of principal executive offices)
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48126
(Zip code)
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Registrants telephone number, including area code (313) 322-3000
Securities registered pursuant to Section 12(b) of the Act:
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Name of each Exchange
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Title of each class
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on which registered
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7 3/8% Notes due October 15, 2031
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New York Stock Exchange
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7.60% Notes due March 1, 2032
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
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Yes
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No
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
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Yes
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No
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.
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Yes
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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).
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Yes
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No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
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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. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act).
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Yes
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No
All of the limited liability company interests in the registrant (Shares) are held by an
affiliate of the registrant. None of the Shares are publicly traded.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form
10-K and is therefore filing this Form with the reduced disclosure format.
EXHIBIT
INDEX APPEARS AT PAGE 56
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
Overview
Ford Motor Credit Company LLC (referred to herein as Ford Credit, the Company, we, our
or us) was incorporated in Delaware in 1959 and converted to a limited liability company in 2007.
We are an indirect, wholly owned subsidiary of Ford Motor Company (Ford). Our principal
executive offices are located at One American Road, Dearborn, Michigan 48126, and our telephone
number is (313) 322-3000.
Our annual reports on Form 10-K and quarterly reports on Form 10-Q filed with the Securities
and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
are available free of charge through our website located at
www.fordcredit.com/investorcenter/
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These reports and our current reports on Form 8-K can be found on the SECs website located at
www.sec.gov
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Products and Services.
We offer a wide variety of automotive financing products to and
through automotive dealers throughout the world. Our primary financing products fall into three
categories:
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Retail financing purchasing retail installment sale and lease contracts from
dealers, and offering financing to commercial customers, primarily vehicle leasing
companies and fleet purchasers, to lease or purchase vehicle fleets;
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Wholesale financing making loans to dealers to finance the purchase of
vehicle inventory, also known as floorplan financing; and
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Other financing making loans to dealers for working capital, improvements to
dealership facilities, and to purchase or finance dealership real estate.
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We also service the finance receivables and leases we originate and purchase, make loans to
Ford affiliates, purchase certain receivables of Ford and its subsidiaries and provide insurance
services related to our financing programs.
We earn our revenue primarily from:
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Payments made under retail installment sale and lease contracts that we
purchase;
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Interest supplements and other support payments from Ford and affiliated
companies on special-rate financing programs; and
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Payments made under wholesale and other dealer loan financing programs.
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Geographic Scope of Operations and 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: Ford Credit North
America (North America Segment) and Ford Financial International (International Segment). The
North America Segment includes our operations in the United States and Canada. The International
Segment includes our operations in all other countries in which we do business directly and
indirectly. For additional financial information regarding our operations by business segments and
operations by geographic regions, see Note 19 of our Notes to the Financial Statements.
North America Segment
We do business throughout the United States and Canada. Our United States operations
accounted for 64% and 65% of our total managed receivables at year-end 2009 and 2008, respectively,
and our Canadian operations accounted for about 11% and 9% of our total managed receivables at
year-end 2009 and 2008, respectively. Managed receivables include on-balance sheet receivables,
excluding unearned interest supplements related to finance receivables, and securitized off-balance
sheet receivables that we continue to service. For additional information on how we review our
business performance, including on a managed basis, refer to the Results of Operations section of
Item 7 of Part II of our 10-K Report.
In the United States and Canada, under the Ford Credit brand name, we provide financing services to
and through dealers of Ford, Lincoln and Mercury brand vehicles and non-Ford vehicles also sold by
these dealers and
their affiliates. We provide similar financial services under the Volvo brand name to and through
Volvo dealers.
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Item 1. Business (Continued)
International Segment
Our International Segment includes operations in three main regions: Europe, Asia-Pacific, and
Latin America. Our Europe region is our largest international operation, accounting for about 22%
of our total managed receivables at year-end 2009 and 2008. Within the International Segment our
Europe region accounted for 88% and 85% of our managed receivables at year-end 2009 and 2008,
respectively. Most of our European operations are managed through a United Kingdom-based
subsidiary, FCE Bank plc (FCE), which operates in the United Kingdom and has active branches in
11 other European countries. In addition, FCE has operating subsidiaries in Hungary, Poland, and
the Czech Republic that provide a variety of wholesale, leasing and retail vehicle financing. FCE
also has subsidiaries in Sweden and the United Kingdom. In our largest European markets, Germany
and the United Kingdom, FCE offers most of our products and services
under the Ford Credit/Bank brand.
In the U.K., FCE also offers products and services under the Volvo Car Finance brand while in
Germany this is provided through a different Ford subsidiary. For additional information on
Jaguar, Land Rover, Mazda, and Volvo, refer to the Overview Our Response section of Item 7 of
Part II of our 10-K Report. FCE generates most of our European revenue and contract volume from
Ford Credit/Bank brand products and services. FCE, through our Worldwide Trade Financing division,
provides financing to distributors/importers in countries where typically there is no established
local Ford presence. The Worldwide Trade Financing division currently provides financing in over
70 countries. In addition, other private label operations and alternative business arrangements
exist in some European markets. In the Asia-Pacific region, we operate in Australia and China. In
the Latin America region, we operate in Mexico, Brazil, and Argentina. We have joint ventures with
local financial institutions and other third parties in various locations around the world.
Dependence on Ford
The predominant share of our business consists of financing Ford vehicles and supporting Ford
dealers. Any extended reduction or suspension of Fords production or sale of vehicles due to a
decline in consumer demand, work stoppage, governmental action, negative publicity or other event,
or significant changes to marketing programs sponsored by Ford, would have an adverse effect on our
business. Additional information about Fords business, operations, production, sales and risks
can be found in Fords Annual Report on Form 10-K for the year ended December 31, 2009 (Fords
2009 10-K Report), filed separately with the SEC and incorporated by reference as an exhibit to
our 2009 10-K Report (without financial statements and exhibits).
Ford has sponsored special-rate financing programs available only through us. Similar
programs may be offered in the future. Under these programs, Ford makes interest supplements or
other support payments to us. These programs increase our financing volume and share of financing
sales of Ford vehicles. Our funding costs have increased compared with our competition; this has
increased our reliance on Ford-sponsored special-rate financing programs offered exclusively
through us. For additional information regarding interest supplements and other support costs
earned from affiliated companies, see Note 18 of our Notes to the Financial Statements.
Competition
The automotive financing business is highly competitive due in part to web-based credit
aggregation systems that permit dealers to send, through standardized systems, retail credit
applications to multiple finance sources to evaluate financing options offered by these finance
sources. Our principal competitors for retail and wholesale financing are:
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Retail
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Wholesale
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Banks
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Banks
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Independent finance companies
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Other automobile manufacturers affiliated finance
companies
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Credit unions and savings and loan associations
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Credit unions
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Leasing companies
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Other automobile manufacturers affiliated finance
companies
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We compete mainly on the basis of service and financing rate programs, including those
sponsored by Ford. A key foundation of our service is providing broad and consistent purchasing
policies for retail installment sale and lease contracts and consistent support for dealer
financing requirements across economic cycles. Through these
policies we have built strong relationships with Fords dealer network that enhance our
competitiveness. Our ability to provide competitive financing rates depends on effectively and
efficiently originating, purchasing and servicing our receivables, and accessing the capital
markets. We routinely monitor the capital markets and develop funding alternatives to optimize our
competitive position. Ford sponsored special-rate financing programs available only through us
gives us a competitive advantage in providing financing to Ford dealers and their customers.
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Item 1. Business (Continued)
Seasonal Variations
As a finance company, we own and manage a large portfolio of finance receivables and operating
leases that are generated throughout the year and are collected over a number of years, primarily
in fixed monthly payments. As a result, our overall financing revenues do not exhibit seasonal
variations.
Retail Financing
Overview and Purchasing Process
We provide financing services to retail customers through automotive dealers that have
established relationships with us. Our primary business consists of purchasing retail installment
sale and lease contracts for new and used vehicles mainly from Ford, Lincoln and Mercury dealers.
We report in our financial statements the receivables from customers under installment sale
contracts and certain leases with fleet customers as finance receivables. We report in our
financial statements most of our retail leases as net investment in operating leases with the
capitalized cost of the vehicles recorded as depreciable assets.
In general, we purchase from dealers retail installment sale contracts and lease contracts
that meet our credit standards. These contracts primarily relate to the purchase or lease of new
vehicles, but some are for used vehicles. Dealers typically submit customer applications
electronically. Some of the applications are automatically evaluated and either approved or
rejected based on our origination scorecard and credit policy criteria. In other cases, our credit
analysts evaluate applications using our written guidelines.
Retail Installment Sale Contracts
The amount we pay for a retail installment sale contract is based on a negotiated vehicle
purchase price agreed to between the dealer and the retail customer, plus any additional products,
such as insurance and extended service plans, that are included in the contract, less any vehicle
trade-in allowance or down payment from the customer applied to the purchase price. The net
purchase price owed by the customer typically is paid over a specified number of months with
interest at a fixed rate negotiated between the dealer and the retail customer. The dealer may
retain a limited portion of the finance charge.
We offer a variety of retail installment sale financing products. In the United States,
retail installment sale contract terms for new Ford, Lincoln and Mercury brand vehicles range
primarily from 24 to 72 months. The average original term of our retail installment sale contracts
was 58 months and 60 months in the United States for contracts purchased in 2009 and 2008,
respectively. A small portion of our retail installment sale contracts have non-uniform payment
periods and payment amounts to accommodate special cash flow situations. We also offer a retail
balloon product in Europe under which the retail customer may finance their vehicle with an
installment sale contract with a series of monthly payments followed by paying the amount remaining
in a single balloon payment. The customer can satisfy the balloon payment obligation by payment in
full of the amount owed, by refinancing the amount owed, or by returning the vehicle to us and
paying additional charges for mileage and excess wear and use, if any. We sell vehicles returned
to us to Ford and non-Ford dealers through auctions. Customers who choose our retail balloon
product may also qualify for special-rate financing offers from Ford.
We hold a security interest in the vehicles purchased through retail installment sale
contracts. This security interest provides us certain rights and protections. As a result, if our
collection efforts fail to bring a delinquent customers payments current, we generally can
repossess the customers vehicle, after satisfying local legal requirements, and sell it at
auction. The customer typically remains liable for any deficiency between net auction proceeds and
the defaulted contract obligations, including any repossession-related expenses. We require retail
customers to carry fire, theft, and collision insurance on financed vehicles.
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Item 1. Business (Continued)
Retail Lease Plans
We offer leasing plans to retail customers through our dealers. Our highest volume
retail-leasing plan is called Red Carpet Lease, which is offered in North America through dealers
of Ford, Lincoln and Mercury brands. We offer similar lease plans through Volvo dealers. Under
these plans, dealers originate the leases and offer them to us for purchase. Upon our purchase of
a lease, we take ownership of the lease and title to the leased vehicle from the dealer. After we
purchase a lease from a dealer, the dealer generally has no further obligation to us in connection
with the lease. The customer is responsible for properly maintaining the vehicle and is obligated
to pay for excess wear and use as well as excess mileage, if any. At the end of the lease, the
customer has the option to purchase the vehicle for the price specified in the lease contract, or
return the vehicle to the dealer. If the customer returns the vehicle to the dealer, the dealer
may buy the vehicle from us or return it to us. We sell vehicles returned to us to Ford and
non-Ford dealers through auctions.
The amount we pay to a dealer for a retail lease, also called the acquisition cost, is based
on the negotiated vehicle price agreed to by the dealer and the retail customer plus any additional
products, such as insurance and extended service plans, that are included in the contract, less any
vehicle trade-in allowance or down payment from the customer. The customer makes monthly lease
payments based on the acquisition cost less the contractual residual value of the vehicle, plus
lease charges. Some of our lease programs, such as our Red Carpet Lease Advance Payment Plan,
provide certain pricing advantages to customers who make all or some monthly payments at lease
inception or purchase refundable higher mileage allowances. We require lease customers to carry
fire, theft, liability, and collision insurance on leased vehicles. In the case of a contract
default and repossession, the customer typically remains liable for any deficiency between net
auction proceeds and the defaulted contract obligations, including any repossession-related
expenses.
In the United States, retail operating lease terms for new Ford, Lincoln and Mercury brand
vehicles range primarily from 24 to 48 months. In 2009 and 2008, the average original lease term
for contracts purchased was 37 months and 35 months, respectively.
Other Vehicle Financing
We offer vehicle-financing programs to commercial customers including leasing companies, daily
rental companies, government entities and fleet customers. These financings include both lease
plans and installment purchase plans and are primarily for terms of 24 to 60 months. The financing
obligations are collateralized by perfected security interests on financed vehicles in almost all
instances and, where appropriate, an assignment of rentals under any related leases. At the end of
the finance term, a lease customer may be required to pay any shortfall between the fair market
value and the specified end of term value of the vehicle. If the fair market value of the vehicle
at the end of the finance term exceeds the specified end of term value, the lease customer may be
paid the excess amount. These financings are included in retail finance receivables and net
investment in operating leases in our financial statements. For certain commercial financing
programs, we have alternative business arrangements whereby we provide marketing and sales support
and funding is provided by a third party.
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Item 1. Business (Continued)
Wholesale Financing
We offer a wholesale financing program for qualifying dealers to finance new and used vehicles
held in inventory. We generally finance the vehicles wholesale invoice price for new vehicles and
up to 100% of the dealers purchase price for used vehicles. Dealers generally pay a floating
interest rate on wholesale loans. In the United States, the average wholesale receivable,
excluding the time the vehicle was in transit from the assembly plant to the dealership, was
outstanding for 72 days in 2009 compared with 73 days in 2008. Our wholesale financing program
includes financing of large multi-brand dealer groups that are some of our largest wholesale
customers based on the amount financed.
When a dealer uses our wholesale financing program to purchase vehicles we obtain a secured
interest in the vehicles and, in many instances, other assets of the dealer. Our subsidiary, The
American Road Insurance Company (TARIC), generally provides insurance for vehicle damage and
theft of vehicles held in dealer inventory that are financed by us.
Other Financing
We make loans to dealers for improvements to dealership facilities, working capital and the
purchase and financing of dealership real estate. These loans are included in other finance
receivables in our financial statements. These loans typically are secured by mortgages on
dealership real estate, secured interests in other dealership assets and sometimes personal
guarantees from the individual owners of the dealership.
We also purchase certain receivables generated by divisions and affiliates of Ford, primarily
in connection with the delivery of vehicle inventories from Ford, the sale of parts and accessories
by Ford to dealers and the purchase of other receivables generated by Ford. These receivables are
included in other finance receivables in our financial statements.
Marketing and Special Programs
We actively market our financing products and services to automotive dealers and customers.
Through personal sales contacts, targeted advertisements in trade publications, participation in
dealer-focused conventions and organizations, and support from manufacturers, we seek to
demonstrate to dealers the value of entering into a business relationship with us. Our marketing
strategy is based on our belief that we can better assist dealers in achieving their sales,
financial, and customer satisfaction goals by being a stable, committed finance source with
knowledgeable automotive and financial professionals offering personal attention and interaction.
We demonstrate our commitment to dealer relationships with a variety of materials, measurements,
and analyses showing the advantages of a full range of automotive financing products that allows
consistent and predictable single source financing. From time to time, we promote increased dealer
transactions through incentives, bonuses, contests, and selected program and rate adjustments.
We promote our retail financing products primarily through pre-approved credit offers to
prospective customers, point-of-sale information, and ongoing communications with existing
customers. Our communications to these customers promote the advantages of our financing products,
the availability of special plans and programs, and the benefits of affiliated products, such as
extended warranties, service plans, insurance coverage, gap protection, and excess wear and use
waivers. We also emphasize the quality of our customer service and the ease of making payments and
transacting business with us. For example, through our web site
located at
www.fordcredit.com
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customer can make inquiries, review an account balance, examine current incentives, schedule an
electronic payment, or qualify for a pre-approved credit offer.
We also market our non-consumer financial services described above in Other Vehicle Financing
with a specialized group of employees who make direct sales calls on dealers, and, often at the
request of such dealers, on potential high-volume commercial customers. This group also uses
various materials to explain our flexible programs and services specifically directed at the needs
of commercial and fleet vehicle customers.
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Item 1. Business (Continued)
Servicing
General.
After we purchase retail installment sale contracts and leases from dealers and
other customers, we manage the contracts during their contract terms. This management process is
called servicing. We service the finance receivables and leases we originate and purchase. Our
servicing duties include the following:
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applying monthly payments from customers;
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contacting delinquent customers for payment;
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maintaining a security interest in the financed vehicle;
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monitoring insurance coverage for lease vehicles in certain states;
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providing billing statements to customers;
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responding to customer inquiries;
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releasing the secured interest on paid-off finance contracts;
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arranging for the repossession of vehicles; and
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selling repossessed and returned vehicles at auction.
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Customer Payment Operations.
In the United States and Canada, customers are directed in their
monthly billing statements to mail payments to a bank for deposit in a lockbox account. Customers
may also make payments through electronic payment services, a direct debit program, or a telephonic
payment system.
Servicing Activities Consumer Credit.
We design our collection strategies and procedures
to keep accounts current and to collect on delinquent accounts. We employ a combination of
proprietary and non-proprietary tools to assess the probability and severity of default for all of
our receivables and leases and implement our collection efforts based on our determination of the
credit risk associated with each customer. As each customer develops a payment history, we use an
internally developed behavioral scoring model to assist in determining the best collection
strategies. Based on data from this scoring model, we group contracts by risk category for
collection. Our centralized collection operations are supported by auto-dialing technology and
proprietary collection and workflow operating systems. Our United States systems also employ a
web-based network of outside contractors who support the repossession process. Through our
auto-dialer program and our monitoring and call log systems, we target our efforts on contacting
customers about missed payments and developing satisfactory solutions to bring accounts current.
Supplier Operations.
We engage vendors to perform many of our servicing processes. These
processes include depositing monthly payments from customers, monitoring the perfection of security
interests in financed vehicles, monitoring insurance coverage on lease vehicles in certain states,
imaging of contracts and electronic data file maintenance, generating retail and lease billing
statements, providing telephonic payment systems for retail customers, handling of some inbound
customer service calls, handling of some inbound and outbound collections calls, and recovering
deficiencies for selected accounts.
Payment Extensions
. We may offer payment extensions to customers who have encountered
temporary financial difficulty that limits their ability to pay as contracted. Each month about
1-2% of our U.S. retail contracts outstanding are granted payment extensions. A payment extension
allows the customer to extend the term of the contract, usually by paying a fee that is calculated
in a manner specified by law. Following a payment extension, the customers account is no longer
delinquent. Before agreeing to a payment extension, the service representative reviews the
customers payment history, current financial situation, and assesses the customers desire and
capacity to make future payments. The service representative decides whether the proposed payment
extension complies with our policies and guidelines. Regional business center managers review, and
generally must approve, payment extensions outside these guidelines.
Repossessions and Auctions.
We view repossession of a financed or leased vehicle as a final
step that we undertake only after all other collection efforts have failed. We usually sell
repossessed vehicles at auction and apply the proceeds to the amount owed on the customers
account. We continue to attempt collection of any deficient amounts until the account is paid in
full, we obtain mutually satisfactory payment arrangements with the debtor or we determine that the
account is uncollectible.
We manage the sale of repossessed vehicles and returned leased vehicles. Repossessed vehicles
are reported in other assets on our balance sheet at values that approximate expected net auction
proceeds. We inspect and
recondition the vehicle to maximize the net auction value of the vehicle. Repossessed
vehicles are sold at open auctions. Returned leased vehicles are sold at open auctions, in which
any licensed dealer can participate and at closed auctions, in which only Ford dealers may
participate.
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Item 1. Business (Continued)
Wholesale and Commercial.
In the United States and Canada, we require dealers to submit
monthly financial statements that we monitor for potential credit deterioration. We assign an
evaluation rating to each dealer, which among other things determines the frequency of physical
audits of vehicle inventory. We electronically audit vehicle inventory utilizing integrated
systems allowing us to access information from Ford reported sales. We monitor dealer inventory
financing payoffs daily to detect deviations from typical repayment patterns and take appropriate
actions. We provide services to fleet purchasers, leasing companies, daily rental companies, and
other commercial customers. We generally review our exposure under these credit arrangements at
least annually. In our international markets, this business is governed by the respective regional
offices, executed within the local markets, and similar risk management principles are applied.
Insurance
We conduct insurance operations primarily through TARIC in the United States and Canada and
through various other insurance subsidiaries outside the United States and Canada. TARIC offers a
variety of products and services, including:
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Contractual liability insurance on extended service contracts and, in the state
of Florida, extended service plan contracts;
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Physical damage insurance covering vehicles at dealers locations and vehicles
in-transit between final assembly plants and dealers locations; and
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Physical damage/liability reinsurance covering Ford dealer daily rental
vehicles.
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We also offer various Ford branded insurance products throughout the world underwritten by
non-affiliated insurance companies from which we receive fee income but the underwriting risk
remains with the non-affiliated insurance companies. In addition, TARIC has provided to Ford and
its subsidiaries various types of surety bonds, including bonds generally required as part of any
appeals of litigation, financial guarantee bonds, and self-insurance workers compensation bonds.
Premiums from our insurance business generated approximately 1% of our total revenues in 2009 and
2008.
Employee Relations
Our full-time employees numbered approximately 8,200 and 10,200 at year-end 2009 and 2008,
respectively. Most of our employees are salaried, and most are not represented by a union. We
consider employee relations to be satisfactory.
Governmental Regulations
As a finance company, we are highly regulated by the governmental authorities in the locations
where we operate.
United States
Within the United States, our operations are subject to regulation, supervision and licensing
under various federal, state, and local laws and regulations.
Federal Regulation.
We are subject to extensive federal regulation, including the
Truth-in-Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act. These
laws require us to provide certain disclosures to prospective purchasers and lessees in consumer
retail and lease financing transactions and prohibit discriminatory credit practices. The
principal disclosures required under the Truth-in-Lending Act for retail finance transactions
include the terms of repayment, the amount financed, the total finance charge and the annual
percentage rate. For retail lease transactions, we are required to disclose the amount due at
lease inception, the terms for payment, and information about lease charges, insurance, excess
mileage, wear and use charges, and liability on early termination. The Equal Credit Opportunity
Act prohibits creditors from discriminating against credit applicants and customers on a variety of
factors, including race, color, sex, age, or marital status. Pursuant to the Equal Credit
Opportunity Act, creditors are required to make certain disclosures regarding consumer rights and
advise consumers whose credit applications are not approved of the reasons for being denied. In
addition, any of the credit scoring systems we use during the application process or other
processes must comply with the requirements for such systems under the Equal Credit Opportunity
Act. The Fair Credit Reporting
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Item 1. Business (Continued)
Act requires us to provide certain information to consumers whose credit applications are not approved on the basis of a consumer credit report
obtained from a national credit bureau and sets forth requirements related to identity theft,
privacy, and enhanced accuracy in credit reporting content. We are also subject to the
Servicemembers Civil Relief Act that prohibits us from charging interest in excess of 6% on
transactions with customers who subsequently enter into full-time service with the military and
request such interest rate modification, and limits our ability to collect future payments from
lease customers who terminate their lease early. In addition, we are subject to other federal
regulation, including the Gramm-Leach-Bliley Act, that requires us to maintain confidentiality and
safeguard certain consumer data in our possession and to communicate periodically with consumers on
privacy matters.
State Regulation Licensing.
In most states, a consumer credit regulatory agency regulates
and enforces laws relating to finance companies. Rules and regulations generally provide for
licensing of finance companies, limitations on the amount, duration and charges, including interest
rates that can be included in finance contracts, requirements as to the form and content of finance
contracts and other documentation, and restrictions on collection practices and creditors rights.
We must renew these licenses periodically. Moreover, several states have laws that limit interest
rates on consumer financing. In periods of high interest rates, these rate limitations could have
an adverse effect on our operations if we were unable to purchase retail installment sale contracts
with finance charges that reflect our increased costs. In certain states, we are subject to
periodic examination by state regulatory authorities.
State Regulation Repossessions.
To mitigate our credit losses, sometimes we repossess a
financed or leased vehicle. Repossessions are subject to prescribed legal procedures, including
peaceful repossession, one or more customer notifications, a prescribed waiting period prior to
disposition of the repossessed vehicle, and return of personal items to the customer. Some states
provide the customer with reinstatement rights that require us to return a repossessed vehicle to
the customer in certain circumstances. Our ability to repossess and sell a repossessed vehicle is
restricted if a customer declares bankruptcy.
International
In some countries outside the United States, some of our subsidiaries, including FCE, are
regulated banking institutions and are required, among other things, to maintain minimum capital
reserves. FCE is authorized as a deposit taking business and insurance intermediary under the
Financial Services and Markets Act of 2000 and is regulated by the U.K. Financial Services
Authority (FSA). FCE also holds a standard license under the U.K. Consumer Credit Act of 1974
and other licenses to conduct financing business in other European locations. Since 1993, FCE has
obtained authorizations from the Bank of England (now the FSA) pursuant to the Banking
Consolidation Directive entitling it to operate through a European branch network and operate
branches in 11 countries. In many other locations where we operate, governmental authorities
require us to obtain licenses to conduct our business.
Regulatory Compliance Status
We believe that we maintain all material licenses and permits required for our current
operations and are in compliance with all material laws and regulations applicable to us and our
operations. Failure to satisfy those legal and regulatory requirements could have a material
adverse effect on our operations, financial condition, and liquidity. Further, the adoption of new
laws or regulations, or the revision of existing laws and regulations, could have a material
adverse effect on our operations, financial condition, and liquidity.
We actively monitor proposed changes to relevant legal and regulatory requirements in order to
maintain our compliance. Through our governmental relations efforts, we also attempt to
participate in the legislative and administrative rule-making process on regulatory initiatives
that impact finance companies. The cost of our ongoing compliance efforts has not had a material
adverse effect on our operations, financial condition, or liquidity.
8
Item 1. Business (Continued)
Transactions with Ford and Affiliates
On November 6, 2008, we and Ford entered into an Amended and Restated Support Agreement
(Support Agreement) (formerly known as the Amended and Restated Profit Maintenance Agreement).
Pursuant to the Support Agreement, if our managed leverage for a calendar quarter were to be higher
than 11.5 to 1 (as reported in our most recent Form 10-Q Report or Form 10-K Report), we can
require Ford to make or cause to be made a capital contribution to us in an amount sufficient to
have caused such managed leverage to have been 11.5 to 1. A copy of the Support Agreement was
filed as an exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended September
30, 2008 and is incorporated by reference herein as an exhibit. No capital contributions have been
made to us pursuant to the Support Agreement. In addition, we have an agreement to maintain FCEs
net worth in excess of $500 million. No payments have been made to FCE pursuant to the agreement
during the 2007 through 2009 periods.
We entered into an Amended and Restated Agreement with Ford dated December 12, 2006 relating
to our set-off arrangements and long-standing business practices with Ford, a copy of which was
included in our Form 8-K dated the same date and is incorporated by reference herein as an exhibit.
The principal terms of this agreement include the following:
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In certain circumstances, our obligations to Ford may be set-off against Fords
obligations to us;
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Any extension of credit from us to Ford or any of Fords automotive affiliates
will be on arms length terms and will be enforced by us in a commercially reasonable
manner;
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We will not guarantee more than $500 million of the indebtedness of, make any
investments in, or purchase any real property or manufacturing equipment classified as an
automotive asset from Ford or any of Fords automotive affiliates;
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We and Ford agree to maintain our shareholders interest at a commercially
reasonable level to support the amount, quality and mix of our assets taking into account
general business conditions affecting us;
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We will not be required by Ford or any of Fords automotive affiliates to
accept credit or residual risk beyond what we would be willing to accept acting in a
prudent and commercially reasonable manner (taking into consideration any interest rate
supplements or residual value support payments, guarantees, or other subsidies that are
provided to us by Ford or any of Fords automotive affiliates); and
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We and Ford are separate, legally distinct companies, and we will continue to
maintain separate books and accounts. We will prevent our assets from being commingled
with Fords assets, and hold ourselves out as a separate and distinct company from Ford and
Fords automotive affiliates.
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More information about transactions between us and Ford and other affiliates is contained in Note
18 of our Notes to the Financial Statements, Business Overview, Business Retail
Financing, Business Other Financing and the description of Fords business in Exhibit
99.
9
ITEM 1A. RISK FACTORS
We have listed below (not necessarily in order of importance or probability of occurrence) the
most significant risk factors applicable to us:
A Prolonged Disruption of the Debt and Securitization Markets
Government-sponsored
securitization funding programs (e.g., the U.S. Federal Reserves Commercial Paper Funding Facility
CPFF and the U.S. Federal Reserves Term Asset-Backed Securities Loan Facility TALF)
intended to improve conditions in the capital markets are scheduled to expire in 2010. If, due to
the expiration of such programs or otherwise, there is a prolonged disruption of the debt and
securitization markets, we would consider further reducing the amount of receivables we purchase or
originate. A significant reduction in the amount of receivables we purchase or originate would
significantly reduce our ongoing profits, and could adversely affect our ability to support the
sale of Ford vehicles. To the extent our ability to provide wholesale financing to Fords dealers
or retail financing to those dealers customers is limited, Fords ability to sell vehicles would
be adversely affected.
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 or Otherwise
The lower credit ratings assigned to us over the past several years have
increased our unsecured borrowing costs and have caused our access to the unsecured debt markets to
be more restricted. In response, we have increased our use of securitization transactions
(including other structured financings) and other sources of funding. Our ability to obtain
funding under our committed asset-backed liquidity programs and certain other asset-backed
securitization transactions is subject to having a sufficient amount of assets eligible for these
programs as well as our ability to obtain appropriate credit ratings and, for certain committed
programs, derivatives to manage the interest rate risk. Over time, and particularly in the event
of any credit rating downgrades, market volatility, market disruption, or other factors, we may
need to reduce the amount of receivables we purchase or originate. In addition, we would need to
reduce the amount of receivables we purchase or originate if there is a significant decline in the
demand for the types of securities we offer or we are unable to obtain derivatives to manage the
interest rate risk associated with our securitization transactions. A significant reduction in the
amount of receivables we purchase or originate would significantly reduce our ongoing profits, and
could adversely affect our ability to support the sale of Ford vehicles. For additional
information on market risk, refer to the Market Risk section of Item 7A of Part II of our 10-K
Report.
Higher-Than-Expected Credit Losses
Credit risk is the possibility of loss from a customers
or dealers failure to make payments according to contract terms. Credit risk (which is heavily
dependent upon economic factors, including unemployment, consumer debt service burden, personal
income growth, dealer profitability, and used vehicle prices) has a significant impact on our
business. Our credit losses could exceed our expectations and adversely affect our financial
condition and results of operations.
Lower-Than-Anticipated Residual Values or Higher-Than-Expected Return Volumes for Leased
Vehicles
We project expected residual values (including residual value support payments from
Ford) and return volumes of the vehicles we lease. Actual proceeds realized by us upon the sale of
returned leased vehicles at lease termination may be lower than the amount projected, which reduces
the profitability of the lease transaction to us. Among the factors that can affect the value of
returned lease vehicles are the volume of vehicles returned, economic conditions and the quality or
perceived quality, safety or reliability of the vehicles. Actual return volumes may be higher than
expected and can be influenced by contractual lease-end values relative to auction values,
marketing programs for new vehicles, and general economic conditions. All of these, alone or in
combination, have the potential to adversely affect our profitability.
10
Item 1A. Risk Factors (Continued)
Increased Competition from Banks or Other Financial Institutions Seeking to Increase Their
Share of Financing Ford Vehicles
No single company is a dominant force in the automotive finance
industry. Most of our bank competitors in the United States use credit aggregation systems that
permit dealers to send, through standardized systems, retail credit applications to multiple
finance sources to evaluate financing options offered by these finance sources. This process has
resulted in greater competition based on financing rates. In addition, we may face increased
competition on wholesale financing for Ford dealers. Competition from such competitors with lower
borrowing costs may increase, which could adversely affect our profitability and the volume of our
business.
Fluctuations in Foreign Currency Exchange Rates and Interest Rates
We are exposed to the
effects of changes in foreign currency exchange rates and interest rates. Changes in currency
exchange rates and interest rates cannot always be predicted or hedged. As a result, substantial
unfavorable changes in foreign currency exchange rates or interest rates could have a substantial
adverse effect on our financial condition and results of operation.
Collection and Servicing Problems Related to Our Finance Receivables and Net Investment in
Operating Leases
After we purchase retail installment sale contracts and leases from dealers and
other customers, we manage or service the receivables. Any disruption of our servicing activity,
due to inability to access or accurately maintain our customer account records or otherwise, could
have a significant negative impact on our ability to collect on those receivables and/or satisfy
our customers.
New or Increased Credit, Consumer or Data Protection, or Other Regulations Could Result in
Higher Costs and/or Additional Financing Restrictions
As a finance company, we are highly
regulated by governmental authorities in the locations where we operate. In the United States, our
operations are subject to regulation, supervision and licensing under various federal, state, and
local laws and regulations, including the federal Truth-in-Lending Act, Equal Credit Opportunity
Act, and Fair Credit Reporting Act. In some countries outside the United States, our subsidiaries
are regulated banking institutions and are required, among other things, to maintain minimum
capital reserves. In many other locations, governmental authorities require companies to have
licenses in order to conduct financing businesses. Efforts to comply with these laws and
regulations impose significant costs on us, and affect the conduct of our business. Additional
regulation could add significant cost or operational constraints that might impair the
profitability of our business.
Changes in Fords Operations or Changes in Fords Marketing Programs Could Result in a Decline
in Our Financing Volumes
Most of our business consists of financing Ford vehicles and supporting
Ford dealers. If there were significant changes in the production or sales of Ford vehicles to
retail customers, the quality or resale value of Ford vehicles, or other factors impacting Ford or
its employees, such changes could significantly affect our profitability and financial condition.
In addition, for many years, Ford has sponsored special-rate financing programs available only
through us. Under these programs, Ford makes interest supplements or other support payments to us.
These programs increase our financing volume and share of financing sales of Ford vehicles. If
Ford were to adopt marketing strategies in the future that de-emphasized such programs in favor of
other incentives, our financing volume could be reduced.
Inability to Obtain Competitive Funding
Other institutions that provide automotive
financing to certain of Fords competitors have access to relatively low-cost government-insured or
other funding. For example, financial institutions with bank holding company status may have
access to other lower cost sources of funding. Access by these competitors dealers and customers
to financing provided by financial institutions with relatively low-cost funding that is not
available to us could adversely affect our ability to support the sale of Ford vehicles at
competitive cost and rates.
We Have Significant Exposure to Ford
At December 31, 2009, in the United States and Canada,
Ford is obligated to pay us about $1 billion of interest supplements (including supplements related
to sold receivables) and $180 million of residual value support payments over the terms of the
related finance contracts and operating leases, compared with $2.5 billion of interest supplements
and about $450 million of residual value support at December 31, 2008, in each case for contracts
purchased prior to January 1, 2008. The interest supplements and residual value support payment
obligations on these contracts will continue to decline as the contracts liquidate. In the event
Ford is unable to pay, fails to pay or is delayed in paying these amounts or any other obligations
to us, our profitability, financial condition, and cash flow could be adversely affected.
11
Item 1A. Risk Factors (Continued)
Failure of Financial Institutions to Fulfill Commitments Under Committed Credit and Liquidity
Facilities
As included in the Liquidity section of Item 7 of Part II of our 10-K Report, at
December 31, 2009, we had $33.8 billion of committed liquidity programs, asset-backed commercial
paper, and credit facilities of which $18.3 billion were utilized leaving $15.5 billion available
for use for which we pay commitment fees. To the extent the financial institutions that provide
these committed facilities and programs were to default on their obligation to fund the
commitments, these facilities and programs would not be available to us.
We are Jointly and Severally Responsible with Ford and its Other Subsidiaries for Funding
Obligations Under Fords and its Subsidiaries Qualified U.S. Defined Benefit Pension Plans
Pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), we are jointly and
severally liable to the Pension Benefit Guaranty Corporation (PBGC) for certain Ford
IRS-qualified U.S. defined benefit pension plan liabilities and to any trustee appointed if one or
more of these pension plans were to be terminated by the PBGC in a distress termination. We are
liable to pay any plan deficiencies and could have a lien placed on our assets by the PBGC to
collateralize this liability. Our financial condition and ability to repay unsecured debt could be
materially adversely affected if we were required to pay some or all of these obligations.
12
ITEM 1B. UNRESOLVED STAFF COMMENTS
We have none to report.
ITEM 2. PROPERTIES
We own our world headquarters in Dearborn, Michigan. We lease our corporate offices in
Brentwood, England, from an affiliate of Ford. Most of our automotive finance branches and
business centers are located in leased properties. The continued use of any of these leased
properties is not material to our operations. At December 31, 2009, our total future rental
commitment under leases of real property was $76 million.
We operate in the United States through four regional business centers. Additionally, we
operate in Canada through a service center and an origination center in Oakville, Ontario.
Our North American regional business and service centers are located in:
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United States:
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Colorado Springs, Colorado
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Greenville, South Carolina
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Tampa, Florida
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Nashville, Tennessee
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Canada:
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Edmonton, Alberta
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Each of these centers generally services dealers and customers located within its region. All
of our U.S. business centers are electronically linked and workload can be allocated across these
centers. In addition, our Canadian service and origination centers share a similar electronic
linkage and workload allocation capability.
We also have five specialty service centers in North America that focus on specific servicing
activities:
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Customer Service Center Omaha, Nebraska;
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Loss Prevention Centers Henderson, Nevada and Irving, Texas;
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National Bankruptcy Service Center Dearborn, Michigan; and
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National Recovery Center Mesa, Arizona.
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In Europe, we have dealer and customer servicing activities in St. Albans, England, to support
our U.K. operations and customers, and in Cologne, Germany, to support our German operations and
customers. In smaller countries, we provide servicing through our local branches.
13
ITEM 3. LEGAL PROCEEDINGS
We are subject to legal actions, governmental investigations, and other proceedings and claims
relating to state and federal laws concerning finance and insurance, employment-related matters,
personal injury matters, investor matters, financial reporting matters, and other contractual
relationships. Some of these matters are class actions or matters where the plaintiffs are seeking
class action status. Some of these matters may involve claims for compensatory, punitive or treble
damages and attorneys fees in very large amounts, or request other relief which, if granted, would
require very large expenditures. We have no significant pending legal proceedings.
Litigation is subject to many uncertainties and the outcome is not predictable. It is
reasonably possible that matters could be decided unfavorably to us. Although the amount of
liability at December 31, 2009 with respect to litigation matters cannot be ascertained, we believe
that any resulting liability should not materially affect our operations, financial condition, and
liquidity.
In addition, any litigation, investigation, proceeding or claim against Ford that results in
Ford incurring significant liability, expenditures or costs could also have a material adverse
affect on our operations, financial condition, and liquidity. For a discussion of pending
significant cases against Ford, see Item 3 in Fords 2009 10-K Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Required.
PART II
ITEM
5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
At December 31, 2009, all of our Shares were owned by Ford Holdings, LLC, a wholly owned
subsidiary of Ford. We did not issue or sell any equity interests during 2009, and there is no
market for our Shares. In 2009, we paid distributions of $1.5 billion, including cash and non-cash
distributions. In 2008, we did not pay any distributions. Our Shares are pledged as collateral
for Fords secured credit facilities.
ITEM 6. SELECTED FINANCIAL DATA
Not Required.
14
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Our primary objective remains to profitably and consistently support the sale of Ford, Lincoln
and Mercury vehicles. Meeting this objective in 2009 was more difficult due to: the adverse impact
of the worldwide credit crisis on the capital markets; low consumer confidence; lower consumer
spending and reduced vehicle demand; higher repossessions; and the impact of our declining
receivables on our ability to maintain a competitive cost structure.
Despite these challenges, we have been able to fund our business and support the sale of Ford
vehicles. We have accomplished this by: using our committed liquidity programs; accessing capital
markets for securitization transactions, much of which were supported by government-sponsored
funding programs in the United States and Europe, and unsecured debt issuances; reducing our
receivables; maintaining consistent risk management practices; and restructuring our business to
maintain a competitive cost structure.
The Challenging Economic Environment
Consistent with the overall market, we have been impacted by volatility and disruptions in the
capital markets since August 2007, particularly the asset-backed securitization market where we
obtain the majority of our funding. The recent global credit environment has presented many
challenges, including reduced access to capital markets, increased credit spreads associated with
our funding, higher renewal costs on our committed liquidity programs, reduced net proceeds from
securitization transactions due to greater enhancements, shorter maturities in our public and
private securitization transactions in certain circumstances, and reduced capacity to obtain
derivatives to manage market risk, including interest rate risk, in our securitization programs.
While challenges remain, we saw improvement in the capital markets in the last three quarters
of 2009 evidenced by improvement in market access and credit spreads, including: four unsecured
debt issuances in the United States and one in Europe totaling about $5 billion with significantly
improved U.S. credit spreads from the first to the most recent; increasingly tighter spreads on the
triple-A rated classes of our U.S. retail securitization transactions; a non-TALF public retail
securitization transaction in November 2009; two European public retail securitization transactions
in the fourth quarter of 2009; our first public wholesale securitization transaction since 2006 in
October 2009; a two-year committed lease facility in December 2009; and the sale of over $150
million of subordinated notes from our September 2009 public retail securitization transaction.
In the United States, low consumer confidence and high unemployment have contributed to lower
consumer spending and reduced vehicle demand. Sales of new vehicles in the United States declined
about 20% in 2009 compared with 2008.
Our Response
More than half of our funding during 2009 was completed through our committed liquidity
programs and government-sponsored funding programs due to constrained public and private
securitization markets. Most of our public securitization issuance in the United States during
2009 was eligible for TALF and we also utilized the CPFF commercial paper program and the European
Central Bank (ECB) open market operations program. In 2009, we completed six TALF-eligible
securitization transactions totaling $10.3 billion and structured two transactions that provided
$1.2 billion of additional funding through the ECB open market operations program. Our reliance on
CPFF declined throughout 2009 and our last outstanding issuance matured in September 2009. Since
the third quarter of 2009, we significantly reduced the use of government-sponsored securitization
funding programs as our access to the public and private securitization and unsecured markets
continued to improve. For additional information on our use of these programs, refer to the
Funding section of Item 7 of Part II of our 10-K Report.
15
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Our funding requirements have decreased as managed receivables declined to $95 billion at
December 31, 2009 from $118 billion at year-end 2008. In 2009, lower global automotive industry
sales resulted in fewer purchases of retail installment sale and lease contracts. In addition, as
part of our commitment to support the sale of Ford, Lincoln and Mercury brand vehicles, Jaguar,
Land Rover, Mazda, and Volvo began to transition their financing to other sources. We also
continued our strategy to execute divestitures and alternative business arrangements in certain
international markets where securitization and other funding availability were limited. We will
continue to explore alternative business arrangements and divestitures. For additional information
on our divestitures, see Note 14 of our Notes to the Financial Statements.
We continue to maintain consistent risk management practices, and continuously strive to
improve our origination and servicing capabilities. For our retail and lease business, we use our
risk management experience to test large sample sizes in developing proprietary origination scoring
models which outperform generic scoring models. Our collection models evaluate several factors,
including origination characteristics, updated credit bureau data, and historical payment patterns.
These models allow for more focused collection activity on higher risk accounts and further refine
our risk-based staffing model to ensure collection resources are aligned with portfolio risk. The
credit quality of our retail and lease originations remains high and our servicing practices remain
sound. For our wholesale and dealer loan business, lower industry sales in the first half of 2009
had a significant adverse effect on dealer profitability and creditworthiness. Although market
conditions remained challenging in the second half of 2009, there was some improvement in dealer
financial performance. Our proprietary commercial risk scorecards use historical experience to
predict a dealers ability to meet its financial obligations. Our scorecards are reviewed annually
and continue to be highly predictive in the segmentation of dealer risk. In 2009, to improve our
monthly monitoring process performed on all dealers, we developed a statistically driven monthly
monitoring scorecard allowing more rapid identification of deteriorating dealer performance.
We are also taking steps to maintain a competitive cost structure. In 2009, we eliminated
about 1,200 U.S. staff and agency positions within our servicing, sales, and central operations.
In February 2010, we announced to our employees our plan to continue to reduce our staffing
requirements in our U.S. operations to meet changing business conditions, including the decline in
our receivables. We plan to eliminate about 1,000 additional staff and agency positions, or about
20% of our U.S. staff. The reductions will occur in 2010 through attrition, retirements, and
involuntary separations. Restructuring in locations outside of the United States will continue as
appropriate.
16
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Results of Operations
Generation of Revenue, Income and Cash
The principal factors that influence our earnings are the amount and mix of finance
receivables and net investment in operating leases and financing margins. The performance of these
receivables and leases over time, mainly through the impact of credit losses and variations in the
residual value of leased vehicles, also affects our earnings.
The amount of our finance receivables and net investment in operating leases depends on many
factors, including:
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the volume of new and used vehicle sales and leases;
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the extent to which we purchase retail installment sale and lease contracts and
the extent to which we provide wholesale financing;
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the sales price of the vehicles financed;
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the level of dealer inventories;
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Ford-sponsored special-rate financing programs available exclusively through
us; and
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the availability of cost-effective funding for the purchase of retail
installment sale and lease contracts and to provide wholesale financing.
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For finance receivables, financing margin equals the difference between revenue earned on
finance receivables and the cost of borrowed funds. For operating leases, financing margin equals
revenue earned on operating leases, less depreciation expense and the cost of borrowed funds.
Interest rates earned on most receivables and rental charges on operating leases generally are
fixed at the time the contracts are originated. On some receivables, primarily wholesale
financing, we charge interest at a floating rate that varies with changes in short-term interest
rates.
Business Performance
We review our business performance from several perspectives, including:
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On-balance sheet basis includes the receivables and leases we own and
securitized receivables and leases that remain on our balance sheet (includes other
structured financings and factoring transactions that have features similar to
securitization transactions);
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Securitized off-balance sheet basis includes receivables sold in
securitization transactions that, when sold, do not remain on our balance sheet;
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Managed basis includes on-balance sheet receivables, excluding unearned
interest supplements related to finance receivables, and securitized off-balance sheet
receivables that we continue to service (off-balance sheet retail receivables were about
$100 million at December 31, 2009); and
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Serviced basis includes managed receivables and leases, and receivables sold
in whole-loan sale transactions where we retain no interest in the sold receivables, but
which we continue to service.
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We analyze our financial performance primarily on a managed and on-balance sheet basis. We
retain interests in receivables sold in off-balance sheet securitization transactions and, with
respect to subordinated retained interests, we have credit risk. As a result, we evaluate credit
losses, receivables, and leverage on a managed basis as well as on an on-balance sheet basis. In
contrast, we do not have the same financial interest in the performance of receivables sold in
whole-loan sale transactions, and as a result, we generally review the performance of our serviced
portfolio only to evaluate the effectiveness of our origination and collection activities. To
evaluate the performance of these activities, we monitor a number of measures, such as
delinquencies, repossession statistics, losses on repossessions, and the number of bankruptcy
filings.
We measure the performance of our North America Segment and our International Segment
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, because our risk management activities are carried out on a centralized basis at
the corporate level, with only certain elements allocated to our two segments. For additional
information regarding our segments, see Note 19 of our Notes to the Financial Statements.
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Item 7.
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Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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Full Year 2009 Compared with Full Year 2008
In 2009, our net income was $1.3 billion, compared with a net loss of $1.5 billion in 2008.
On a pre-tax basis, we earned $2 billion in 2009, compared with a loss of $2.6 billion in 2008.
The improvement in pre-tax earnings primarily reflected:
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The non-recurrence of the 2008 impairment charge to our North America Segment operating
lease portfolio for contracts terminating beginning third quarter of 2008 (about $2.1
billion);
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Lower depreciation expense for leased vehicles and lower residual losses on returned
vehicles due to higher auction values (about $1.9 billion);
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A lower provision for credit losses primarily related to non-recurrence of higher
severity offset partially by higher repossessions (about $800 million);
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The non-recurrence of net losses related to market valuation adjustments to
derivatives, shown as unallocated risk management in the table below ($367 million);
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Net gains related to unhedged currency exposure primarily from cross-border
intercompany lending (about $300 million);
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Lower net operating costs (about $200 million); and
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Higher financing margin primarily attributable to lower borrowing costs (about $100
million).
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These factors were offset partially by:
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Lower volume primarily reflecting lower industry volumes, lower dealer stocks, the
impact of divestitures and alternative business arrangements, and changes in currency
exchange rates (about $1 billion);
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The non-recurrence of the gain related to the sale of approximately half of our
ownership interest in our Nordic operations (about $100 million); and
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A valuation allowance for Australian finance receivables sold in 2009 (about $50
million).
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For additional information on the 2008 impairment charge, refer to the Results of Operations
Impairment of Net Investment in Operating Leases section of Item 7 of Part II of our 10-K Report.
Results of our operations by business segment and unallocated risk management for 2009 and
2008 are shown below:
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Full Year
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2009
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Over/(Under)
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2009
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2008
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2008
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(in millions)
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Income/(Loss) before income taxes
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North America Segment
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$
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1,905
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$
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(2,749
|
)
|
|
$
|
4,654
|
|
International Segment
|
|
|
46
|
|
|
|
507
|
|
|
|
(461
|
)
|
Unallocated risk management
|
|
|
50
|
|
|
|
(317
|
)
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes
|
|
|
2,001
|
|
|
|
(2,559
|
)
|
|
|
4,560
|
|
Provision for/(Benefit from) income
taxes and Gain on disposal of
discontinued operations
|
|
|
722
|
|
|
|
(1,023
|
)
|
|
|
1,745
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
1,279
|
|
|
$
|
(1,536
|
)
|
|
$
|
2,815
|
|
|
|
|
|
|
|
|
|
|
|
The improvement in North America Segment pre-tax earnings primarily reflected non-recurrence
of the impairment charge for operating leases, lower depreciation expense for leased vehicles and
lower residual losses on returned vehicles due to higher auction values, a lower provision for
credit losses, net gains related to unhedged currency exposure from cross-border intercompany
lending, higher financing margin, and lower operating costs. These factors were offset partially
by lower volume.
The decrease in International Segment pre-tax earnings primarily reflected lower volume, a
higher provision for credit losses primarily reflecting losses in Spain and Germany, lower
financing margin primarily in Mexico, non-recurrence of a gain related to the sale of approximately
half of our ownership interest in our Nordic operations, and a valuation allowance for Australian
finance receivables sold in 2009. These factors were offset partially by lower operating costs.
The change in unallocated risk management income reflected the non-recurrence of net losses
related to market valuation adjustments to derivatives primarily related to movements in interest
rates. For additional information on our unallocated risk management, see Note 19 of our Notes to
the Financial Statements.
18
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Full Year 2008 Compared with Full Year 2007
Impairment of Net Investment in Operating Leases.
During the second quarter of 2008, higher
fuel prices and the weak economic climate in North America resulted in a pronounced shift in
consumer preferences from full-size trucks and traditional sport utility vehicles to smaller, more
fuel-efficient vehicles. This shift in consumer preferences combined with a weak economic climate
caused a significant reduction in auction values, in particular for used full-size trucks and
traditional sport utility vehicles. At the end of the quarter, we completed our quarterly North
America operating lease portfolio adequacy study for accumulated depreciation and projected that
lease-end residual values would be significantly lower than previously expected for full-size
trucks and traditional sport utility vehicles.
As a result of the market factors and our adequacy study results, we tested the operating
leases of our North America Segment for recoverability as of June 30, 2008 and recorded a pre-tax
impairment charge of $2.1 billion in
Depreciation on vehicles subject to operating leases
representing the amount by which the carrying value of certain vehicle lines, primarily full-size
trucks and traditional sport utility vehicles, in our lease portfolio exceeded their fair value.
19
|
|
Item 7.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
|
In 2008, our net loss was $1.5 billion, compared with net income of $775 million in 2007. On
a pre-tax basis, we incurred a loss of $2.6 billion in 2008, compared with earnings of $1.2 billion
in 2007. The decrease in pre-tax earnings primarily reflected the significant decline in used
vehicle auction values during 2008. This decline in auction values contributed to:
|
|
|
An impairment charge to our North America Segment operating lease portfolio for
contracts terminating beginning third quarter of 2008 (about $2.1 billion);
|
|
|
|
|
A higher provision for credit losses (about $1.2 billion); and
|
|
|
|
|
Higher depreciation expense for leased vehicles (about $700 million).
|
Other factors to explain the decrease in pre-tax earnings included:
|
|
|
Lower volume primarily related to lower average receivables (about $300 million);
|
|
|
|
|
Higher net losses related to market valuation adjustments to derivatives ($209
million); and
|
|
|
|
|
The non-recurrence of the gain related to the sale of a majority of our interest in AB
Volvofinans (about $100 million);
|
These factors were offset partially by:
|
|
|
Higher financing margin primarily attributable to lower borrowing costs (about $200
million);
|
|
|
|
|
The non-recurrence of costs associated with our North American business transformation
initiative (about $200 million);
|
|
|
|
|
Lower expenses primarily reflecting improved operating costs (about $300 million); and
|
|
|
|
|
A gain related to the sale of approximately half of our ownership interest in our
Nordic operations (about $100 million).
|
Results of our operations by business segment and unallocated risk management for 2008 and
2007 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Over/(Under)
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(in millions)
|
|
Income/(Loss) before income taxes
|
North America Segment
|
|
$
|
(2,749
|
)
|
|
$
|
701
|
|
|
$
|
(3,450
|
)
|
International Segment
|
|
|
507
|
|
|
|
622
|
|
|
|
(115
|
)
|
Unallocated risk management
|
|
|
(317
|
)
|
|
|
(108
|
)
|
|
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes
|
|
|
(2,559
|
)
|
|
|
1,215
|
|
|
|
(3,774
|
)
|
Provision for/(Benefit from) income
taxes and Gain on disposal of
discontinued operations
|
|
|
(1,023
|
)
|
|
|
440
|
|
|
|
(1,463
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
(1,536
|
)
|
|
$
|
775
|
|
|
$
|
(2,311
|
)
|
|
|
|
|
|
|
|
|
|
|
The decrease in North America Segment pre-tax earnings primarily reflected the second quarter
2008 impairment charge for operating leases, a higher provision for credit losses, higher
depreciation expense for leased vehicles, and lower contract volume. These factors were offset
partially by higher financing margin, the non-recurrence of costs associated with our business
transformation initiative, and lower expenses primarily reflecting improved operating costs.
The decrease in International Segment pre-tax earnings primarily reflected lower volume and
financing margin, a higher provision for credit losses, the non-recurrence of a gain related to the
sale of a majority of our interest in AB Volvofinans, and higher reserves for residual based
products, offset partially by gains related to the sale of our ownership interests in several
operations, lower operating costs, and changes in currency exchange rates.
The change in unallocated risk management income reflected higher net losses related to market
valuation adjustments to derivatives primarily related to movements in interest rates. For
additional information on our unallocated risk management, see Note 19 of our Notes to the
Financial Statements.
20
|
|
Item 7.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
|
Placement Volume and Financing Share
Total worldwide financing contract placement volumes for new and used vehicles are shown
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
North America Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
591
|
|
|
|
1,043
|
|
|
|
1,256
|
|
Canada
|
|
|
85
|
|
|
|
149
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
Total North America Segment
|
|
|
676
|
|
|
|
1,192
|
|
|
|
1,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
468
|
|
|
|
629
|
|
|
|
696
|
|
Other international
|
|
|
49
|
|
|
|
129
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
Total International Segment
|
|
|
517
|
|
|
|
758
|
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract placement volume
|
|
|
1,193
|
|
|
|
1,950
|
|
|
|
2,345
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing share Ford, Lincoln and Mercury
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
29
|
%
|
|
|
39
|
%
|
|
|
38
|
%
|
Wholesale
|
|
|
79
|
|
|
|
77
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing share Ford
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
28
|
%
|
|
|
28
|
%
|
|
|
26
|
%
|
Wholesale
|
|
|
99
|
|
|
|
98
|
|
|
|
96
|
|
North America Segment
In 2009, our total contract placement volumes were 676,000, down 516,000 contracts from a year
ago. This decrease primarily reflected lower sales of new Ford, Lincoln and Mercury vehicles, due
to lower U.S. industry volumes and lower Ford, Lincoln and Mercury financing share, and the
transition of Jaguar, Land Rover, and Mazda financing to other finance providers. Lower Ford,
Lincoln and Mercury financing share was primarily explained by changes in Fords marketing programs
and our reduction in leasing.
International Segment
In 2009, our total contract placement volumes were 517,000, down 241,000 contracts from a year
ago. This decrease primarily reflected lower industry volumes, the transition of Jaguar, Land
Rover, and Mazda financing to other finance providers, a planned financing share reduction in
Spain, the discontinuation of retail originations in Australia, and the divestiture of our Japan
operations.
21
|
|
Item 7.
|
Managements 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in billions)
|
|
Receivables On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment
|
|
$
|
42.3
|
|
|
$
|
49.5
|
|
|
$
|
52.2
|
|
Wholesale
|
|
|
13.3
|
|
|
|
14.0
|
|
|
|
18.6
|
|
Other
|
|
|
1.9
|
|
|
|
2.2
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
Total North America Segment finance receivables
|
|
|
57.5
|
|
|
|
65.7
|
|
|
|
73.4
|
|
International Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment
|
|
|
14.0
|
|
|
|
16.0
|
|
|
|
22.0
|
|
Wholesale
|
|
|
9.1
|
|
|
|
13.7
|
|
|
|
16.2
|
|
Other
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
Total International Segment finance receivables
|
|
|
23.6
|
|
|
|
30.3
|
|
|
|
39.0
|
|
Unearned interest supplements
|
|
|
(1.9
|
)
|
|
|
(1.3
|
)
|
|
|
|
|
Allowance for credit losses
|
|
|
(1.3
|
)
|
|
|
(1.4
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
Finance receivables, net
|
|
|
77.9
|
|
|
|
93.3
|
|
|
|
111.4
|
|
Net investment in operating leases
|
|
|
14.6
|
|
|
|
22.5
|
|
|
|
29.7
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables on-balance sheet (a)(b)
|
|
$
|
92.5
|
|
|
$
|
115.8
|
|
|
$
|
141.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables managed (c)
|
|
$
|
94.5
|
|
|
$
|
117.7
|
|
|
$
|
147.1
|
|
Total receivables serviced (d)
|
|
|
94.6
|
|
|
|
118.0
|
|
|
|
148.0
|
|
|
|
|
(a)
|
|
At December 31, 2009 and 2008, includes finance receivables of $64.4
billion and $73.7 billion, respectively, that have been sold for legal purposes
in securitization transactions that do not satisfy the requirements for
accounting sale treatment. In addition, at December 31, 2009 and 2008, includes
net investment in operating leases of $10.4 billion and $15.6 billion,
respectively, that have been included in securitization transactions that do not
satisfy the requirements for accounting sale treatment. 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
Securitization Transactions and On-Balance Sheet Arrangements sections of
Item 7 of Part II of our 10-K Report and Note 7 of our Notes to the Financial
Statements.
|
|
(b)
|
|
Includes allowance for credit losses of $1.5 billion and $1.7 billion at
December 31, 2009 and 2008, respectively.
|
|
(c)
|
|
Includes on-balance sheet receivables, excluding unearned interest
supplements related to finance receivables of $1.9 billion and $1.3 billion at
December 31, 2009 and 2008, respectively; and includes off-balance sheet retail
receivables of about $100 million and about $600 million at December 31, 2009 and
2008, respectively.
|
|
(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 and about $300 million at December 31, 2009 and 2008,
respectively.
|
Receivables decreased from year-end 2008, primarily reflecting lower industry volumes, lower
dealer stocks, and the transition of Jaguar, Land Rover, and Mazda financing to other finance
providers. In 2009, as part of our commitment to support the sale of Ford, Lincoln and Mercury
brand vehicles, Volvo began to transition its financing to other sources. At December 31, 2009,
the Jaguar, Land Rover, and Mazda financing portfolio represented 7% of our managed receivables and
the Volvo financing portfolio represented 5% of our managed receivables. 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 $1.9 billion at December 31, 2009, compared with $1.3
billion at December 31, 2008 included in
Finance receivables, net
and the amount of unearned
interest supplements and residual support payments for net investment in operating leases was $1.1
billion at December 31, 2009, compared with $1.3 billion at December 31, 2008 included in
Other
liabilities and deferred income
.
22
|
|
Item 7.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
|
At December 31, 2009, in the United States and Canada, Ford is obligated to pay us about $1
billion of interest supplements and $180 million of residual value support payments over the terms
of the related finance contracts and operating leases, compared with $2.5 billion of interest
supplements and about $450 million of residual value support at December 31, 2008, 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, see
Notes 4, 5, and 18 of our Notes to the Financial Statements.
Credit Risk
Credit risk is the possibility of loss from a customers or dealers failure to make payments
according to contract terms. Credit risk has a significant impact on our business. We actively
manage the credit risk of our retail installment and lease and wholesale and dealer loan portfolios
to balance our level of risk and return. The allowance for credit losses 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 December 31, 2009, about 5% of the outstanding U.S. retail
finance and lease contracts in our serviced portfolio were classified as high risk at contract
inception, slightly higher than year-end 2008 of about 4%. This increase primarily reflects a
lower percentage of lease contracts in our retail portfolio. Lease contracts generally include
shorter average terms and higher average FICO scores compared with retail installment sale
contracts.
23
|
|
Item 7.
|
Managements 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
Charge-offs On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
$
|
989
|
|
|
$
|
1,089
|
|
|
$
|
608
|
|
Wholesale
|
|
|
94
|
|
|
|
29
|
|
|
|
17
|
|
Other
|
|
|
12
|
|
|
|
17
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs on-balance sheet
|
|
$
|
1,095
|
|
|
$
|
1,135
|
|
|
$
|
632
|
|
|
|
|
|
|
|
|
|
|
|
Loss-to-Receivables Ratios On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
1.25
|
%
|
|
|
1.10
|
%
|
|
|
0.60
|
%
|
Wholesale
|
|
|
0.45
|
|
|
|
0.09
|
|
|
|
0.05
|
|
Total loss-to-receivables ratio (including other)
on-balance sheet
|
|
|
1.07
|
%
|
|
|
0.84
|
%
|
|
|
0.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs managed (in millions)
|
|
$
|
1,100
|
|
|
$
|
1,166
|
|
|
$
|
697
|
|
Total loss-to-receivables ratio (including other) managed
|
|
|
1.07
|
%
|
|
|
0.84
|
%
|
|
|
0.47
|
%
|
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.
Charge-offs decreased from a year ago reflecting lower losses in the United States, offset
partially by higher losses in Europe. Charge-offs in the United States decreased due to lower
severity and lower other charge-offs, offset partially by higher repossessions. The charge-off
increase in Europe primarily reflected higher losses in Spain and Germany. Loss-to-receivables
ratios increased from a year ago primarily reflecting a combination of lower average receivables,
higher repossessions in the United States, and higher losses in Spain and Germany. For additional
information on severity, refer to the Critical Accounting Estimates Allowance for Credit
Losses section of Item 7 of Part II of our 10-K Report.
24
|
|
Item 7.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
|
U.S. Ford, Lincoln and Mercury Brand Retail Installment and Operating Lease
The following table shows the credit loss metrics for our Ford, Lincoln and Mercury brand U.S.
retail installment sale and operating lease portfolio. This portfolio was 64% of our worldwide
on-balance sheet portfolio of retail installment receivables and net investment in operating leases
at December 31, 2009. Trends and causal factors are consistent with the worldwide results, with
repossessions up 13,000 units in 2009 from a year ago, reflecting the weak economic environment.
Severity was lower by $1,600 per unit from a year ago, mainly due to improvements in auction values
in the used vehicle market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs (in millions)
|
|
$
|
635
|
|
|
$
|
775
|
|
|
$
|
431
|
|
Loss-to-receivables ratio
|
|
|
1.32
|
%
|
|
|
1.36
|
%
|
|
|
0.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Metrics Serviced
|
|
|
|
|
|
|
|
|
|
|
|
|
Repossessions (in thousands)
|
|
|
94
|
|
|
|
81
|
|
|
|
74
|
|
Repossession ratio (a)
|
|
|
3.01
|
%
|
|
|
2.30
|
%
|
|
|
1.89
|
%
|
Severity (b)
|
|
$
|
8,300
|
|
|
$
|
9,900
|
|
|
$
|
7,400
|
|
New bankruptcy filings (in thousands)
|
|
|
47
|
|
|
|
37
|
|
|
|
27
|
|
Over-60 day delinquency ratio (c)
|
|
|
0.24
|
%
|
|
|
0.24
|
%
|
|
|
0.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs managed (in millions)
|
|
$
|
637
|
|
|
$
|
796
|
|
|
$
|
474
|
|
Loss-to-receivables ratio managed
|
|
|
1.32
|
%
|
|
|
1.35
|
%
|
|
|
0.73
|
%
|
|
|
|
(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
10-K Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
Allowance for Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
$
|
1,479
|
|
|
$
|
1,610
|
|
|
$
|
1,026
|
|
Wholesale
|
|
|
43
|
|
|
|
55
|
|
|
|
58
|
|
Other
|
|
|
27
|
|
|
|
3
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses
|
|
$
|
1,549
|
|
|
$
|
1,668
|
|
|
$
|
1,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percentage of End-of-Period Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
2.08
|
%
|
|
|
1.82
|
%
|
|
|
0.99
|
%
|
Wholesale
|
|
|
0.19
|
|
|
|
0.20
|
|
|
|
0.17
|
|
Total including other
|
|
|
1.61
|
%
|
|
|
1.40
|
%
|
|
|
0.77
|
%
|
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 decreased from 2008, primarily reflecting the
decline in receivables and decrease in charge-offs. At December 31, 2009, our allowance for credit
losses included about $215 million, which was based on managements judgment regarding higher
retail installment and lease repossession assumptions and higher wholesale and dealer loan default
assumptions compared with historical trends used in our models. At December 31, 2008, our
allowance for credit losses included about $210 million, which was based on managements judgment
regarding higher severity assumptions. At December 31, 2007, our allowance for credit losses did
not include any incremental amounts based on management judgment. The credit quality of our retail
and lease originations remains high.
25
|
|
Item 7.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
|
Residual Risk
We are exposed to residual risk on operating leases and similar balloon payment products where
the customer may return the financed vehicle to us. Residual risk is the possibility that the
amount we obtain from returned vehicles will be less than our estimate of the expected residual
value for the vehicle. We estimate the expected residual value by evaluating recent auction
values, return volumes for our leased vehicles, industry-wide used vehicle prices, marketing
incentive plans, and vehicle quality data.
For additional information on our residual risk on operating leases, refer to the Critical
Accounting Estimates Accumulated Depreciation on Vehicles Subject to Operating Leases section
of Item 7 of Part II of our 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 98% of our total investment in operating leases at
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
Placements
|
|
|
67
|
|
|
|
317
|
|
|
|
484
|
|
Terminations
|
|
|
386
|
|
|
|
381
|
|
|
|
378
|
|
Returns
|
|
|
314
|
|
|
|
327
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
Return rates
|
|
|
81
|
%
|
|
|
86
|
%
|
|
|
79
|
%
|
In 2009, placement volumes were down 250,000 units compared with 2008, primarily reflecting
changes in Fords marketing programs that emphasized retail installment sale contracts, lower
industry volumes, and the transition of Jaguar, Land Rover, and Mazda financing to other finance
providers. Termination volumes increased by 5,000 units compared with last year, reflecting higher
placement volumes in 2006 and 2007. Return volumes decreased 13,000 units compared with last year,
primarily reflecting lower return rates, consistent with improved auction values relative to our
expectations of lease-end values at the time of contract purchase.
26
|
|
Item 7.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
|
U.S. Ford, Lincoln and Mercury Brand Retail Operating Lease Experience
The following table shows return volumes for our Ford, Lincoln and Mercury brand U.S.
operating lease portfolio. Also included are auction values at constant fourth quarter 2009
vehicle mix for lease terms comprising 59% of our active Ford, Lincoln and Mercury brand U.S.
operating lease portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
Returns
|
|
|
|
|
|
|
|
|
|
|
|
|
24-Month term
|
|
|
60
|
|
|
|
88
|
|
|
|
85
|
|
36-Month term
|
|
|
65
|
|
|
|
61
|
|
|
|
58
|
|
39-Month/Other term
|
|
|
34
|
|
|
|
19
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
Total returns
|
|
|
159
|
|
|
|
168
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
Return rates
|
|
|
78
|
%
|
|
|
88
|
%
|
|
|
83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction Values at Constant
Fourth Quarter 2009 Vehicle Mix
|
|
|
|
|
|
|
|
|
|
|
|
|
24-Month term
|
|
$
|
18,670
|
|
|
$
|
16,310
|
|
|
$
|
17,635
|
|
36-Month term
|
|
|
13,365
|
|
|
|
12,015
|
|
|
|
14,105
|
|
In 2009, Ford, Lincoln and Mercury brand U.S. return volumes were down 9,000 units compared
with 2008, primarily reflecting a lower return rate, down ten percentage points to 78%, consistent
with improved auction values relative to our expectations of lease-end values at the time of
contract purchase. Auction values at constant fourth quarter 2009 mix were up $2,360 per unit from
2008 levels for vehicles under 24-month leases, and up $1,350 for vehicles under 36-month leases,
primarily reflecting the overall auction value improvement in the used vehicle market. We expect
future auction values to remain volatile.
27
|
|
Item 7.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
|
Credit Ratings
Our short-term and long-term debt is rated by four credit rating agencies designated as
nationally recognized statistical rating organizations (NRSROs) by the SEC:
|
|
|
DBRS Limited (DBRS);
|
|
|
|
|
Fitch, Inc. (Fitch);
|
|
|
|
|
Moodys Investors Service, Inc. (Moodys); and
|
|
|
|
|
Standard & Poors Ratings Services, a division of The McGraw-Hill Companies, Inc.
(S&P).
|
In several markets, locally recognized rating agencies also rate us. A credit rating reflects
an assessment by the rating agency of the credit risk associated with particular securities we
issue, based on information provided by Ford, other sources, and us. Credit ratings are not
recommendations to buy, sell, or hold securities and are subject to revision or withdrawal at any
time by the assigning rating agency. Each rating agency may have different criteria for evaluating
company risk and, therefore, ratings should be evaluated independently for each rating agency.
Lower credit ratings generally result in higher borrowing costs and reduced access to capital
markets. Credit ratings assigned to us from all of the NRSROs are closely associated with their
opinions on Ford.
The following chart summarizes long-term senior unsecured credit ratings, short-term credit
ratings, and the outlook assigned to us since January 2007 by these four NRSROs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NRSRO RATINGS
|
|
|
DBRS
|
|
Fitch
|
|
Moodys
|
|
S&P
|
|
|
Long-
|
|
Short-
|
|
|
|
Long-
|
|
Short-
|
|
|
|
Long-
|
|
Short-
|
|
|
|
Long-
|
|
Short-
|
|
|
Date
|
|
Term
|
|
Term
|
|
Trend
|
|
Term
|
|
Term
|
|
Outlook
|
|
Term
|
|
Term
|
|
Outlook
|
|
Term*
|
|
Term
|
|
Outlook
|
Jan. 2007
|
|
B
|
|
R-4
|
|
Negative
|
|
BB-
|
|
B
|
|
Negative
|
|
B1
|
|
NP
|
|
Negative
|
|
B
|
|
B-3
|
|
Negative
|
Nov. 2007
|
|
B
|
|
R-4
|
|
Stable
|
|
BB-
|
|
B
|
|
Negative
|
|
B1
|
|
NP
|
|
Stable
|
|
B
|
|
B-3
|
|
Stable
|
June 2008
|
|
B
|
|
R-4
|
|
Negative
|
|
BB-
|
|
B
|
|
Negative
|
|
B1
|
|
NP
|
|
Negative
|
|
B
|
|
B-3
|
|
Negative
|
July 2008
|
|
B
|
|
R-4
|
|
Negative
|
|
BB-
|
|
B
|
|
Negative
|
|
B1
|
|
NP
|
|
Negative
|
|
B-
|
|
NR
|
|
Negative
|
Aug. 2008
|
|
B
|
|
R-4
|
|
Negative
|
|
B+
|
|
B
|
|
Negative
|
|
B1
|
|
NP
|
|
Negative
|
|
B-
|
|
NR
|
|
Negative
|
Oct. 2008
|
|
B
|
|
R-4
|
|
Negative
|
|
B-
|
|
C
|
|
Negative
|
|
B2
|
|
NP
|
|
Negative
|
|
B-
|
|
NR
|
|
Negative
|
Nov. 2008
|
|
B (low)
|
|
R-5
|
|
Negative
|
|
B-
|
|
C
|
|
Negative
|
|
B3
|
|
NP
|
|
Negative
|
|
CCC+
|
|
NR
|
|
Negative
|
Dec. 2008
|
|
B (low)
|
|
R-5
|
|
Negative
|
|
B-
|
|
C
|
|
Negative
|
|
Caa1
|
|
NP
|
|
Negative
|
|
CCC+
|
|
NR
|
|
Negative
|
July 2009
|
|
B (low)
|
|
R-5
|
|
Negative
|
|
B-
|
|
C
|
|
Negative
|
|
Caa1
|
|
NP
|
|
Negative
|
|
CCC+
|
|
NR
|
|
Developing
|
Aug. 2009
|
|
B (low)
|
|
R-5
|
|
Stable
|
|
B
|
|
C
|
|
Stable
|
|
Caa1
|
|
NP
|
|
Negative
|
|
CCC+
|
|
NR
|
|
Developing
|
Sep. 2009
|
|
B (low)
|
|
R-5
|
|
Stable
|
|
B
|
|
C
|
|
Stable
|
|
Caa1
|
|
NP
|
|
Review
|
|
CCC+
|
|
NR
|
|
Developing
|
Nov. 2009
|
|
B (low)
|
|
R-5
|
|
Positive
|
|
B
|
|
C
|
|
Positive
|
|
B3
|
|
NP
|
|
Review
|
|
B-
|
|
NR
|
|
Stable
|
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
|
|
|
|
*
|
|
S&P assigns FCE a long-term senior unsecured credit rating of B, maintaining a one notch
differential versus Ford Credit.
|
28
Item 7. Managements 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 and committed funding capacity. As a result of
lower long-term senior unsecured credit ratings assigned to us over the past few years, our
unsecured funding costs have increased over time. While we have accessed the unsecured debt market
when available, we have increased our use of securitization funding as this has been more cost
effective than unsecured funding and has allowed us access to a broader investor base. We plan to
meet a significant portion of our 2010 funding requirements through securitization transactions.
In addition, we have various alternative business arrangements for select products and markets that
reduce our funding requirements while allowing us to support Ford (e.g., our partnering in Brazil
for retail financing and FCEs partnering with various institutions in Europe for full service
leasing and retail and wholesale financing). We are continuing to explore and execute such
alternative business arrangements. 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.
Consistent with the overall market, we have been impacted by volatility and disruptions in the
asset-backed securitization market since August 2007. The recent global credit environment has
presented many challenges, including reduced access to public and private unsecured and
securitization markets, increased credit spreads associated with both asset-backed and unsecured
funding, higher renewal costs on our committed liquidity programs, reduced net proceeds from
securitization transactions due to greater enhancements, shorter maturities in our public and
private securitization transactions in certain circumstances, and reduced capacity to obtain
derivatives to manage market risk, including interest rate risk, in our securitization programs.
While challenges remain, we saw improvement in the capital markets in the last three quarters
of 2009 evidenced by improvement in market access and credit spreads, including: four unsecured
debt issuances in the United States and one in Europe totaling about $5 billion with significantly
improved U.S. credit spreads from the first to the most recent; increasingly tighter spreads on the
triple-A rated classes of our U.S. retail securitization transactions; a non-TALF public retail
securitization transaction in November 2009; two European public retail securitization transactions
in the fourth quarter of 2009; our first public wholesale securitization transaction since 2006 in
October 2009; a two-year committed lease facility in December 2009; and the sale of over $150
million of subordinated notes from our September 2009 public retail securitization transaction.
During 2009, 70% of our committed capacity, as of December 31, 2008, was up for renewal of
which we renewed 63%. During the second half of 2009, we renewed 83% of the capacity up for
renewal, which was higher than the first half of 2009 renewal rate of 52%. The renewals also
required significantly higher spreads, which tightened throughout the year. About 74% of our
committed capacity, as of December 31, 2009, is up for renewal in 2010 and 6% is up for renewal in
the first quarter of 2010. Most of our asset-backed committed facilities enable us to obtain term
funding up to the time that the facilities mature. Any outstanding debt at the maturity of the
facilities remains outstanding and is repaid as 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 as well as our 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 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 as well as disruption beyond the expiration of the government-sponsored
securitization funding programs. Potential impacts of industry events on our ability to access debt
and derivatives markets or renew our committed liquidity programs in sufficient amounts and at
competitive rates represent another risk to our funding plan. As a result, we may need to further
reduce the amount of finance receivables and operating leases we purchase or originate, thereby
reducing our ongoing profits and adversely affecting our ability to support the sale of Ford
vehicles.
29
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
Funding Sources
Our funding sources include primarily securitization transactions (including other structured
financings) and unsecured debt. We issue both short- and long-term debt that is held by both
institutional and retail investors, with long-term debt having an original maturity of more than 12
months.
We sponsor a number of securitization programs that can be structured to provide both short-
and long-term funding through institutional investors in the United States and international
capital markets. For additional information on our securitization transactions, refer to the
Securitization Transactions section of Item 7 of Part II of our 10-K Report.
We obtain short-term unsecured funding from the sale of floating rate demand notes under our
Ford Interest Advantage program and by issuing unsecured commercial paper in the United States,
Europe, and other international markets. At December 31, 2009, the principal amount outstanding of
Ford Interest Advantage notes, which may be redeemed at any time at the option of the holders
thereof without restriction, was about $4 billion. At present, all of our short-term credit
ratings by NRSROs are below the Tier-2 category, and as a result we have limited access to the
unsecured commercial paper market and our unsecured commercial paper cannot be held by money market
funds. At December 31, 2009, the principal amount outstanding of our unsecured commercial paper
was less than $1 million.
We do not hold reserves specifically to fund the payment of any of our unsecured short-term
funding obligations. Instead, we maintain multiple sources of liquidity, including cash, cash
equivalents, and marketable securities (excluding marketable securities related to insurance
activities), unused committed liquidity programs, excess securitizable assets, and committed and
uncommitted credit facilities, which should be sufficient for our unsecured short-term funding
obligations.
Government-Sponsored Securitization Funding Programs
Government-sponsored securitization funding programs have helped stabilize the asset-backed
securitization market. Since the third quarter of 2009, we significantly reduced the use of these
programs as our access to the public and private securitization and unsecured markets continued to
improve.
Commercial Paper Funding Facility.
The CPFF became operational in October 2008 and purchased
unsecured and asset-backed commercial paper from U.S. issuers. In 2008, we registered to sell up
to $16 billion from our asset-backed commercial paper program (FCAR) to the CPFF. At December
31, 2008, FCAR had $7 billion of commercial paper outstanding under the CPFF, which represented
about 60% of FCARs outstanding balance. FCAR was able to issue a limited amount of commercial
paper to investors during the first half of 2009 and at lower interest rates than under CPFF, but
with a relatively short average maturity compared with CPFF and often overnight. FCAR issued a
total of $9 billion of commercial paper to the CPFF in 2009, all of which had matured by September
30, 2009. Commercial paper was sold to the CPFF at a price based on the designated benchmark rate
plus a spread of 300 basis points. This represented a significantly higher rate than those that
prevailed in the asset-backed commercial paper market before August 2007, when the disruptions in
the debt and asset-backed securitization markets began. As a result of improvements in the
asset-backed commercial paper market as well as a reduction in the overall size of the FCAR
program, FCAR is able to issue commercial paper outside the CPFF at prices and average maturities
that are close to those that prevailed before August 2007. The CPFF ceased purchasing commercial
paper on February 1, 2010.
Term Asset-Backed Securities Loan Facility.
TALF began in March 2009 to make credit available
by restoring liquidity in the asset-backed securitization market. Under TALF, the Federal Reserve
Bank of New York (FRBNY) makes loans to holders of TALF-eligible asset-backed securities. The
loans are equal to the market value of the asset-backed securities less a discount. Interest rates
on most TALF loans are 100 basis points over the respective term benchmark rate, and discounts vary
according to the assets supporting the asset-backed securities. The TALF program revived the
asset-backed securitization market by attracting new investors who purchased asset-backed
securities, receiving higher spreads on these securities than the spreads they pay on their loans
from FRBNY. As investor demand increased due to the liquidity provided by TALF, spreads generally
narrowed on our issuances and the percentage of non-TALF investors increased. As the spread on
certain asset-backed securities fell below the 100 basis point spread on TALF loans, our
TALF-eligible asset-backed securities were purchased almost exclusively by non-TALF investors.
30
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
We issued $10.3 billion of TALF-eligible asset-backed securities in 2009, of which $2.2
billion amortized during the year and $8.1 billion was outstanding at December 31, 2009. We have
also issued a total of $1.3 billion of TALF-eligible asset-backed securities in 2010. The
following table summarizes our TALF-eligible issuances including the weighted average spread of the
triple-A rated notes over the relevant benchmark rates for securitization transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
Date
|
|
Issuer
|
|
Size
|
|
Spread
|
|
|
|
|
(in billions)
|
|
(basis points)
|
Retail Installment
|
|
|
|
|
|
|
|
|
Mar. 2009
|
|
Ford Credit Auto Owner Trust 2009-A
|
|
$
|
3.0
|
|
|
|
295
|
|
June 2009
|
|
Ford Credit Auto Owner Trust 2009-B
|
|
|
1.9
|
|
|
|
161
|
|
July 2009
|
|
Ford Credit Auto Owner Trust 2009-C
|
|
|
1.0
|
|
|
|
165
|
|
Sep. 2009
|
|
Ford Credit Auto Owner Trust 2009-D
|
|
|
2.1
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
|
|
|
|
|
|
|
|
Oct. 2009
|
|
Ford Credit Master Owner Trust 2009-2
|
|
$
|
1.5
|
|
|
|
155
|
|
Jan. 2010
|
|
Ford Credit Master Owner Trust 2010-1
|
|
|
1.3
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Lease
|
|
|
|
|
|
|
|
|
|
|
June 2009
|
|
Ford Credit Auto Lease Trust 2009-A
|
|
$
|
0.8
|
|
|
|
211
|
|
We recently completed two public asset-backed securitization transactions that were not
TALF-eligible: a retail securitization transaction with a weighted average spread of 48 basis
points on the triple-A rated notes in November 2009 and a lease securitization transaction with a
weighted average spread of 54 basis points on the triple-A rated notes in February 2010. In
January 2010, we issued about $230 million of non-TALF subordinated wholesale asset-backed
securities that were rated double-A and single-A. In February 2010, we also issued $250 million of
private wholesale asset-backed securities with a maturity of five years compared with the
three-year maturity of our previous TALF transactions. We do not plan to complete any additional
TALF-eligible retail or lease transactions before the expected expiration of TALF on March 31,
2010. Given the recent improvements in the securitization market and absent further significant
market disruptions, we have confidence we can obtain funding in the public securitization markets
without TALF.
European Central Bank Open Market Operations.
FCE is eligible to access liquidity through the
ECBs open market operations program. This program allows eligible counterparties to use eligible
assets (including asset-backed securities) as collateral for short-term liquidity. The present
term limitation is three months; however, in the past the term has been as long as one year. The
funding efficiency of liquidity provided under this program is typically lower than if the
asset-backed securities were placed in the public or private markets because the ECB applies its
own market valuation to the collateral and a discount to the original face value of the
asset-backed securities. The market valuation and discount vary by the term of the asset, asset
type, and jurisdiction of the asset. During the first half of 2009, FCE used the ECBs open market
operations program to provide additional liquidity at a time when access to the asset-backed
securitization market was limited and costs for such funding were significantly higher than in the
past. FCE had $1.8 billion and $1.1 billion of funding through the ECB at December 31, 2009 and
2008, respectively. During the second half of 2009, improvements in the asset-backed
securitization market allowed FCE to receive funding from public and private securitization
transactions and sell collateral previously posted with the ECB in the secondary markets. We
expect FCEs utilization of the ECB open market operations program to decline.
Cost of Funding Sources
The cost of securitization transactions and unsecured debt funding is based on a margin or
spread over a benchmark interest rate. Spreads are typically measured in basis points. Our
asset-backed funding and unsecured long-term debt costs are based on spreads over U.S. Treasury
securities of similar maturities, a comparable London Interbank Offered Rate (LIBOR), or other
comparable benchmark rates. Our floating rate demand notes funding costs are changed depending on
market conditions.
31
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
In addition to enhancing our liquidity, one of the main reasons that we have increased our use
of securitization transactions as a funding source over the last few years has been that spreads on
our securitization transactions have been more stable and lower than those on our unsecured
long-term debt funding. Prior to August 2007, our securitized funding spreads (which are based on
the creditworthiness of the underlying securitized asset and
enhancements) were not volatile, while our unsecured long-term spreads were volatile.
Consistent with the overall market, we were impacted by volatility in the asset-backed
securitization market beginning in the second half of 2007. We experienced higher spreads for several of our committed liquidity programs as well
as our public and private issuances. During 2009, our spreads on the three-year fixed rate notes
offered in our U.S. public retail securitization transactions decreased from 425 to 70 basis points
over the relevant benchmark rates from March 2009 to November 2009, respectively. During 2009, our
U.S. unsecured long-term debt transaction spreads decreased from 1,006 to 480 basis points over the
relevant benchmark rates from June 2009 to December 2009, respectively.
Funding Portfolio
Our outstanding debt and off-balance sheet securitization transactions were as follows on the
dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in billions)
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed commercial paper (a)(b)
|
|
$
|
6.4
|
|
|
$
|
11.5
|
|
|
$
|
13.5
|
|
Other asset-backed short-term debt (a)
|
|
|
4.5
|
|
|
|
5.6
|
|
|
|
5.2
|
|
Ford Interest Advantage (c)
|
|
|
3.6
|
|
|
|
2.0
|
|
|
|
5.4
|
|
Unsecured commercial paper
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.5
|
|
Other short-term debt
|
|
|
0.9
|
|
|
|
1.0
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt
|
|
|
15.4
|
|
|
|
20.1
|
|
|
|
26.1
|
|
Unsecured long-term debt (including notes
payable within one year)
|
|
|
38.9
|
|
|
|
51.2
|
|
|
|
62.8
|
|
Asset-backed long-term debt (including notes
payable within one year) (a)
|
|
|
42.0
|
|
|
|
55.2
|
|
|
|
50.5
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
96.3
|
|
|
|
126.5
|
|
|
|
139.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Securitization Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized off-balance sheet portfolio
|
|
|
0.1
|
|
|
|
0.6
|
|
|
|
6.0
|
|
Retained interest
|
|
|
0.0
|
|
|
|
(0.1
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
Total off-balance sheet securitization transactions
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
Total debt plus off-balance sheet
securitization transactions
|
|
$
|
96.4
|
|
|
$
|
127.0
|
|
|
$
|
144.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized funding to managed receivables
|
|
|
56
|
%
|
|
|
62
|
%
|
|
|
51
|
%
|
Short-term debt and notes payable within one year
to total debt
|
|
|
43
|
|
|
|
50
|
|
|
|
43
|
|
Short-term debt and notes payable within one year
to total capitalization
|
|
|
39
|
|
|
|
46
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Obligations issued in securitization transactions that are payable only out of collections on the underlying securitized assets and
related enhancements.
|
|
(b)
|
|
At December 31, 2009, we did not have any asset-backed commercial paper sold to the CPFF. At December 31, 2008, includes
asset-backed commercial paper sold to the CPFF of $7 billion.
|
|
(c)
|
|
The Ford Interest Advantage program consists of our floating rate demand notes.
|
At December 31, 2009, unsecured long-term debt (including notes payable within one year)
was down about $12 billion from year-end 2008, primarily reflecting about $18 billion of debt
maturities and repurchases, offset partially by about $6 billion of new unsecured public and
private long-term debt issuance. Unsecured long-term debt maturities were as follows: 2010 $7
billion; 2011 $11 billion; 2012 $7 billion; and the remainder thereafter.
At December 31, 2009, asset-backed long-term debt (including notes payable within one year)
was down about $13 billion from year-end 2008, reflecting amortization of asset-backed debt in
excess of asset-backed long-term debt issuance.
32
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
Term Funding Plan
The following table shows our public and private term funding issuances in 2008 and 2009 and
our planned issuances for 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
Forecast
|
|
|
2009
|
|
|
2008
|
|
|
|
(in billions)
|
|
Public Term Funding
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
$
|
3- 6
|
|
|
$
|
5
|
|
|
$
|
2
|
|
Securitization Transactions.
|
|
|
8-12
|
|
|
|
15
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
Total public term funding
|
|
$
|
12-17
|
|
|
$
|
20
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Term Funding*
|
|
$
|
8-13
|
|
|
$
|
11
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Includes private term debt, securitization transactions, and other term
funding; excludes sales to Ford Credits on-balance sheet asset-backed
commercial paper program.
|
In 2009, we completed about $20 billion of public term funding transactions, including:
about $12 billion of retail asset-backed securitization transactions in the United States, Canada,
and Europe; about $2 billion of wholesale asset-backed securitization transactions in the United
States; about $1 billion of lease asset-backed securitization transactions in the United States;
and about $5 billion of unsecured issuances.
In 2009, we completed about $11 billion of private term funding transactions (excluding our
on-balance sheet asset-backed commercial paper program) in several markets, including about $4
billion in Canada. These private transactions included retail, lease, and wholesale asset-backed
securitization transactions.
In 2009, total issuance was about $11 billion lower than 2008, primarily reflecting lower
funding requirements resulting from lower receivables. However, 2009 public issuance was about $7
billion higher than 2008, primarily reflecting the availability of and our preference to issue in
the public markets. In 2009, there was a corresponding reduction in reliance on private capacity
as we lowered our utilization of committed funding programs.
Through February 24, 2010, we completed about $4 billion of public term funding transactions,
including about $1.5 billion for a lease asset-backed securitization transaction in the
United States, about $1.5 billion of wholesale asset-backed securitization transactions in the United
States, about $800 million of retail asset-backed securitization
transactions in the United States, Canada, and Europe, and about
$500 million of unsecured issuances in the United States. We also completed about $1 billion of private
term funding transactions, primarily reflecting retail and wholesale asset-backed securitization
transactions in the United States and Europe.
33
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
Liquidity
We define liquidity as cash, cash equivalents, and marketable securities (excluding marketable
securities related to insurance activities) and capacity (which includes capacity in our committed
liquidity programs, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and marketable securities*
|
|
$
|
17.3
|
|
|
$
|
23.6
|
|
|
$
|
16.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Committed liquidity programs
|
|
$
|
23.2
|
|
|
$
|
28.0
|
|
|
$
|
36.8
|
|
Asset-backed commercial paper (FCAR)
|
|
|
9.3
|
|
|
|
15.7
|
|
|
|
16.9
|
|
Credit facilities
|
|
|
1.3
|
|
|
|
2.0
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
Committed capacity
|
|
$
|
33.8
|
|
|
$
|
45.7
|
|
|
$
|
56.7
|
|
|
|
|
|
|
|
|
|
|
|
Committed capacity and cash
|
|
$
|
51.1
|
|
|
$
|
69.3
|
|
|
$
|
73.4
|
|
Less: Capacity in excess of eligible receivables
|
|
|
(6.5
|
)
|
|
|
(4.8
|
)
|
|
|
(4.7
|
)
|
Less: Cash and cash equivalents to support
on-balance sheet securitization transactions
|
|
|
(5.2
|
)
|
|
|
(5.5
|
)
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
|
|
Liquidity
|
|
$
|
39.4
|
|
|
$
|
59.0
|
|
|
$
|
64.0
|
|
Less: Utilization
|
|
|
(18.3
|
)
|
|
|
(37.6
|
)
|
|
|
(36.1
|
)
|
|
|
|
|
|
|
|
|
|
|
Liquidity available for use
|
|
$
|
21.1
|
|
|
$
|
21.4
|
|
|
$
|
27.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Excludes marketable securities related to insurance activities.
|
At December 31, 2009, committed capacity and cash shown above totaled $51.1 billion, of
which $39.4 billion could be utilized (after adjusting for capacity in excess of eligible
receivables of $6.5 billion and cash required to support on-balance sheet securitization
transactions of $5.2 billion). At December 31, 2009, $18.3 billion was utilized, leaving $21.1
billion available for use (including $12.1 billion of cash, cash equivalents, and marketable
securities, but excluding marketable securities related to insurance activities and cash and cash
equivalents to support on-balance sheet securitization transactions).
At December 31, 2009, our liquidity available for use was lower than year-end 2008 by about
$300 million, as debt maturities and cash payments were higher than the impact of lower receivables
and new debt issuances. The reduction in liquidity available for use from year-end 2008 also
included a $630 million cumulative adjustment, reflected in the first quarter of 2009, to correct
for the overstatement of cash and cash equivalents and certain accounts payable that originated in
prior periods. For additional information on this correction, refer
to the consolidated statement
of cash flows. Liquidity available for use was 22% of managed receivables.
In addition to the $21.1 billion of liquidity available for use, the $6.5 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 December 31, 2009, our cash, cash
equivalents, and marketable securities (excluding marketable securities related to insurance
activities) totaled $17.3 billion, compared with $23.6 billion at year-end 2008. In the normal
course of our funding activities, we may generate more proceeds than are required for our immediate
funding needs. These excess amounts are maintained primarily as highly liquid investments, which
provide liquidity for our short-term funding needs and give us flexibility in the use of our other
funding programs. Our cash, cash equivalents, and marketable securities (excluding marketable
securities related to insurance activities) primarily include federal agency securities, bank time
deposits with investment grade institutions, A-1/P-1 (or higher) rated commercial paper, U.S.
Treasury bills, 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 is typically less than 90 days and is adjusted based on market conditions and liquidity
needs. We monitor our cash levels and average maturity on a daily basis. Cash and cash
equivalents include amounts to be used only to support our on-balance sheet securitization
transactions of $5.2 billion at December 31, 2009 and $5.5 billion at December 31, 2008.
34
Item 7. Managements 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 $23.2
billion at December 31, 2009 ($10.8 billion retail, $8.1 billion wholesale, and $4.3 billion
supported by various retail, lease, or wholesale assets) of which $7.4 billion are commitments to
FCE. These committed liquidity programs have varying maturity dates, with $20.2 billion having
maturities within the next twelve months (of which $6.7 billion relates to FCE commitments), and
the remaining balance having maturities between March 2011 and December 2011. While there is a
risk of non-renewal of some of these committed liquidity programs, which could lead to a reduction
in the size of these programs and/or higher costs, our capacity in excess of eligible receivables
would enable us to absorb some reductions. 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. For
additional information on our committed liquidity programs, see Note 10 of our Notes to the
Financial Statements.
Credit Facilities
Our credit facilities and asset-backed commercial paper lines were as follows on the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford Credit bank lines
|
|
$
|
0.0
|
|
|
$
|
0.3
|
|
|
$
|
0.5
|
|
FCE bank lines
|
|
|
1.3
|
|
|
|
1.7
|
|
|
|
2.5
|
|
Utilized amounts
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
Available credit facilities
|
|
$
|
0.6
|
|
|
$
|
1.4
|
|
|
$
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Commercial Paper Lines
|
|
|
|
|
|
|
|
|
|
|
|
|
FCAR asset-backed commercial paper lines
|
|
$
|
9.3
|
|
|
$
|
15.7
|
|
|
$
|
16.9
|
|
Motown Notes
SM
asset-backed commercial paper lines
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-backed commercial paper lines
|
|
$
|
9.3
|
|
|
$
|
15.7
|
|
|
$
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, we and our subsidiaries, including FCE, had $1.3 billion of
contractually-committed unsecured credit facilities with financial institutions, of which $645
million were available for use. In addition, at December 31, 2009, we had reduced the FCAR program
size to $9.3 billion of contractually-committed liquidity facilities provided by banks to match our
funding needs and reflect commercial paper market conditions. For additional information on our
credit facilities, see Note 10 of our Notes to the Financial Statements.
35
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
Balance Sheet Liquidity Profile
We define our balance sheet liquidity profile as the cumulative maturities of our finance
receivables, investment in operating leases, and cash less the cumulative debt maturities over
upcoming annual periods. The following table shows our balance sheet liquidity profile for the
periods presented as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Through
|
|
|
Through
|
|
|
2013 and
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Beyond
|
|
|
|
(in billions)
|
|
Finance
receivables (a),
investment in
operating leases
(b) and cash (c)
|
|
$
|
73.1
|
|
|
$
|
95.0
|
|
|
$
|
105.5
|
|
|
$
|
113.3
|
|
Debt
|
|
|
(49.9
|
)
|
|
|
(70.5
|
)
|
|
|
(81.7
|
)
|
|
|
(96.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
receivables,
investment in
operating
leases and cash
over/(under)
debt
|
|
$
|
23.2
|
|
|
$
|
24.5
|
|
|
$
|
23.8
|
|
|
$
|
16.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Finance receivables net of unearned income.
|
|
(b)
|
|
Investment in operating leases net of accumulated depreciation.
|
|
(c)
|
|
Cash includes cash, cash equivalents, and marketable securities (excludes marketable
securities related to insurance activities) at December 31, 2009.
|
Our balance sheet is inherently liquid because of the short-term nature of our finance
receivables, investment in operating leases, and cash. Maturities of investment in operating
leases consist primarily of rental payments attributable to depreciation over the remaining life of
the lease and the expected residual value at lease termination. For additional information on
maturities of finance receivables and debt, see Notes 4 and 10 of our Notes to the Financial
Statements. The 2010 finance receivables maturities in the table above include all of the
wholesale receivables maturities that are otherwise shown in Note 4 as extending beyond 2010. The
table above also reflects the following adjustments to debt maturities in Note 10 to match all of
the asset-backed debt maturities with the underlying asset maturities:
|
|
|
The 2010 maturities include all of the wholesale securitization transactions
that otherwise extend beyond 2010; and
|
|
|
|
|
Retail securitization transactions under certain committed liquidity
programs are treated as amortizing on January 1, 2010 instead of amortizing after the
contractual maturity of those committed liquidity programs that otherwise extend beyond
January 1, 2010.
|
Liquidity Risks
Despite our diverse sources of liquidity, our ability to maintain this liquidity may be
affected by the following factors:
|
|
|
Prolonged disruption of the debt and securitization markets;
|
|
|
|
|
Global capital market volatility;
|
|
|
|
|
Market capacity for Ford- and Ford Credit-sponsored investments;
|
|
|
|
|
General demand for the type of securities we offer;
|
|
|
|
|
Our ability to continue funding through asset-backed financing structures;
|
|
|
|
|
Performance of the underlying assets within our asset-backed financing
structures;
|
|
|
|
|
Inability to obtain hedging instruments;
|
|
|
|
|
Accounting and regulatory changes;
|
|
|
|
|
Our ability to maintain credit facilities and renew committed liquidity
programs; and
|
|
|
|
|
Credit ratings assigned to us.
|
36
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
Securitization Transactions
Overview
We securitize finance receivables and net investment 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 completed our first securitization transaction in
1988, and regularly securitize assets, purchased or originated, in the United States, Canada,
Mexico, and Europe.
Most of our securitization transactions do not satisfy the requirements for accounting sale
treatment, and the securitized assets and related debt remain on our balance sheet. Some of our
securitization transactions, however, do satisfy accounting sale treatment and are not reflected on
our balance sheet in the same way as debt funding. All of our securitization transactions since
the first quarter of 2007 have been on-balance sheet transactions. Both on- and off-balance sheet
securitization transactions have an effect on our financial condition, operating results, and
liquidity.
We securitize our assets because the securitization market provides us with a lower cost
source of funding compared with unsecured debt given our present credit ratings, and it diversifies
our funding among different markets and investors. In the United States, we are generally able to
obtain funding in two days for our unutilized capacity in most of our committed liquidity programs.
New programs and new transaction structures typically require substantial development time before
coming to market.
Use of Special Purpose Entities
In a securitization transaction, the securitized assets are generally held by a
bankruptcy-remote special purpose entity (SPE) in order to isolate the securitized assets from
the claims of our other creditors and ensure that the cash flows on the securitized assets are
available for the benefit of securitization investors. As a result, payments to securitization
investors are based on the creditworthiness of the securitized assets and any enhancements, and not
on our creditworthiness. Senior asset-backed securities issued by the SPEs generally receive the
highest short-term credit ratings and among the highest long-term credit ratings from the rating
agencies that rate them.
Securitization SPEs have limited purposes and generally are only permitted to purchase the
securitized assets, issue asset-backed securities, and make payments on the securities. Some SPEs,
such as certain trusts that issue securities backed by retail installment sale contracts, only
issue a single series of securities and generally are dissolved when those securities have been
paid in full. Other SPEs, such as the trusts that issue securities backed by wholesale
receivables, issue multiple series of securities from time to time and are not dissolved until the
last series of securities is paid in full.
Our use of SPEs in our securitization transactions is consistent with conventional practices
in the securitization industry. We sponsor the SPEs used in all of our securitization programs
with the exception of bank-sponsored conduits. None of our officers, directors, or employees holds
any equity interests in our SPEs or receives any direct or indirect compensation from the SPEs.
These SPEs do not own our Shares or shares of any of our affiliates.
Selection of Assets, Enhancements, and Retained Interests
In order to be eligible for inclusion in a securitization transaction, each asset must satisfy
certain eligibility criteria designed for the specific transaction. For example, for
securitization transactions of retail installment sale contracts, the selection criteria may be
based on factors such as location of the obligor, contract term, payment schedule, interest rate,
financing program, the type of financed vehicle, and whether the contracts are active and in good
standing (e.g., when the obligor is not more than 30-days delinquent or bankrupt). Generally, we
select the assets to be included in a particular securitization randomly from our entire portfolio
of assets that satisfy the applicable eligibility criteria.
We provide various forms of credit enhancements to reduce the risk of loss for securitization
investors. Credit enhancements include over-collateralization (when the principal amount of the
securitized assets exceeds the principal amount of related asset-backed securities), segregated
cash reserve funds, subordinated securities, and
excess spread (when interest collections on the securitized assets exceed the related fees and
expenses, including interest payments on the related asset-backed securities). We may also provide
payment enhancements that increase the likelihood of the timely payment of interest and the payment of principal at maturity.
Payment enhancements include yield supplement arrangements, interest rate swaps and other hedging
arrangements, liquidity facilities, and certain cash deposits.
37
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
We retain interests in our securitization transactions, including senior and subordinated
securities issued by the SPE, rights to cash held for the benefit of the securitization investors
(for example, a reserve fund), and residual interests. Residual interests represent the right to
receive collections on the securitized assets in excess of amounts needed to pay securitization
investors and to pay other transaction participants and expenses. We retain credit risk in
securitization transactions because our retained interests include the most subordinated interests
in the securitized assets and are structured to absorb expected credit losses on the securitized
assets before any losses would be experienced by investors. Based on past experience, we expect
that any losses in the pool of securitized assets would likely be limited to our retained
interests.
Our Continuing Obligations
We are engaged as servicer to collect and service the securitized assets. Our servicing
duties include collecting payments on the securitized assets and preparing monthly investor reports
on the performance of the securitized assets and on amounts of interest and/or principal payments
to be made to investors. While servicing securitized assets, we apply the same servicing policies
and procedures that we apply to our owned assets and maintain our normal relationship with our
financing customers.
We generally have no obligation to repurchase or replace any securitized asset that
subsequently becomes delinquent in payment or otherwise is in default. 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 their investments. We do not guarantee any asset-backed
securities and have no obligation to provide liquidity or make monetary contributions or
contributions of additional assets to our SPEs either due to the performance of the securitized
assets or the credit rating of our short-term or long-term debt. However, as the seller and
servicer of the securitized assets, we are obligated to provide certain kinds of support to our
securitization transactions, which are customary in the securitization industry. These obligations
include indemnifications, repurchase obligations on assets that do not meet eligibility criteria or
that have been materially modified, the mandatory sale of additional assets in revolving
transactions, and, in some cases, servicer advances of certain amounts.
Risks to Continued Funding under Securitization Programs
The following securitization programs contain structural features that could prevent us from
using these sources of funding in certain circumstances:
|
|
|
Retail Securitization
If the credit enhancement on any asset-backed security
held by FCAR is reduced to zero, FCAR may not purchase any additional asset-backed
securities or issue additional commercial paper and would wind down its operations. In
addition, if credit losses or delinquencies in our portfolio of retail assets exceed
specified levels, FCAR is not permitted to purchase additional asset-backed securities for
so long as such levels are exceeded.
|
|
|
|
|
Retail Conduits
If credit losses or delinquencies on the pool of assets held
by a conduit exceed specified levels, or if the level of over-collateralization or credit
enhancements for such pool decreases below a specified level, we will not have the right to
sell additional pools of assets to that conduit.
|
|
|
|
|
Wholesale Securitization
If the payment rates on wholesale receivables in
the securitization trust are lower than specified levels or if there are significant dealer
defaults, we will be unable to obtain additional funding and any existing funding would
begin to amortize.
|
|
|
|
|
Retail Warehouse
If credit losses or delinquencies in our portfolio of
retail assets exceed specified levels, we will be unable to obtain additional funding from
the securitization of retail installment sale contracts through our retail warehouse
facility (i.e., a short-term credit facility under which draws are backed by the retail
contracts).
|
|
|
|
|
Lease Warehouse
If credit losses or delinquencies in our portfolio of retail
lease contracts exceed specified levels, we will be unable to obtain additional funding
from the securitization of retail lease contracts through our lease warehouse facility
(i.e., a credit facility under which draws are backed by the retail lease contracts).
|
In the past, these features have not limited our ability to use securitization to fund our
operations.
38
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
In addition to the structural features discussed previously, our securitization programs may
be affected by the following factors:
|
|
|
Market
Market disruption and volatility could impact investors acceptance
of asset-backed securities and our ability to access debt, securitization, or derivative
markets around the world at competitive rates or in sufficient amounts. For additional
information on market risk, refer to the Market Risk section of Item 7A of Part II of our
10-K Report.
|
|
|
|
|
Market capacity for us and our sponsored investments
Investors may reach
exposure limits and/or wish to diversify away from our risk.
|
|
|
|
|
General demand for the type of assets supporting the asset-backed securities
Investor desire for securities with different risk and/or yield characteristics could
result in reduced demand for these types of investments.
|
|
|
|
|
Availability of committed liquidity facilities
Our ability to maintain
committed liquidity facilities for any programs that require them.
|
|
|
|
|
Amount and credit quality of assets available
Lower overall asset levels or
a higher proportion of non-performing assets could decrease the amount of assets available
to securitize.
|
|
|
|
|
Performance of assets in our previous securitization transactions
If assets
in our existing securitization transactions deteriorate significantly, we may not be able
to access the market, particularly in public transactions where asset performance is
publicly available and/or the costs to securitize may increase.
|
|
|
|
|
Accounting and regulatory changes
Such changes may result in temporary
disruption or termination of one or more of our present programs which may or may not be
able to be restructured or replaced.
|
|
|
|
|
Credit ratings
Credit ratings assigned to us may impact investors
acceptance of our asset-backed securities.
|
|
|
|
|
Bankruptcy of Ford, Ford Credit, or FCE
A bankruptcy of Ford, Ford Credit,
or FCE would cause certain of our funding transactions to amortize and result in a
termination of certain liquidity commitments
.
|
If, as a result of any of these or other factors, the cost of securitization funding were to
increase significantly or funding through securitization transactions were no longer available to
us, it would have a material adverse impact on our financial condition and results of operations,
which could adversely affect our ability to support the sale of Fords vehicles.
39
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
On-Balance Sheet Arrangements
Most of our securitization transactions do not satisfy the requirements for accounting sale
treatment and, therefore, the securitized assets and related debt are included in our financial
statements. We expect our future securitization transactions to be on-balance sheet. We believe
on-balance sheet arrangements are more transparent to our investors. Securitized assets are only
available to repay the related asset-backed debt and to pay other securitization investors and
other participants. 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, receivables, and related debt
by segment and product for our on-balance sheet securitization transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Finance
|
|
|
|
|
|
|
|
|
|
|
Finance
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
|
|
|
|
|
|
|
|
and Net
|
|
|
|
|
|
|
|
|
|
|
and Net
|
|
|
|
|
|
|
Cash and
|
|
|
Investment
|
|
|
|
|
|
|
Cash and
|
|
|
Investment
|
|
|
|
|
|
|
Cash
|
|
|
in Operating
|
|
|
Related
|
|
|
Cash
|
|
|
in Operating
|
|
|
Related
|
|
|
|
Equivalents
|
|
|
Leases
|
|
|
Debt
|
|
|
Equivalents
|
|
|
Leases
|
|
|
Debt
|
|
|
|
(in billions)
|
|
Finance Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment
|
|
$
|
2.0
|
|
|
$
|
35.0
|
|
|
$
|
28.3
|
|
|
$
|
2.2
|
|
|
$
|
42.6
|
|
|
$
|
35.2
|
|
Wholesale
|
|
|
0.1
|
|
|
|
12.6
|
|
|
|
6.3
|
|
|
|
0.3
|
|
|
|
13.3
|
|
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total North America Segment
|
|
|
2.1
|
|
|
|
47.6
|
|
|
|
34.6
|
|
|
|
2.5
|
|
|
|
55.9
|
|
|
|
46.3
|
|
International Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment
|
|
|
1.4
|
|
|
|
9.9
|
|
|
|
7.4
|
|
|
|
1.1
|
|
|
|
9.0
|
|
|
|
7.4
|
|
Wholesale
|
|
|
0.4
|
|
|
|
6.9
|
|
|
|
4.3
|
|
|
|
0.9
|
|
|
|
8.8
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International Segment
|
|
|
1.8
|
|
|
|
16.8
|
|
|
|
11.7
|
|
|
|
2.0
|
|
|
|
17.8
|
|
|
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance receivables
|
|
|
3.9
|
|
|
|
64.4
|
|
|
|
46.3
|
|
|
|
4.5
|
|
|
|
73.7
|
|
|
|
60.2
|
|
Net investment in operating leases
|
|
|
1.3
|
|
|
|
10.4
|
|
|
|
6.6
|
|
|
|
1.0
|
|
|
|
15.6
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet arrangements
|
|
$
|
5.2
|
|
|
$
|
74.8
|
|
|
$
|
52.9
|
|
|
$
|
5.5
|
|
|
$
|
89.3
|
|
|
$
|
72.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For additional information on our on-balance sheet arrangements, see Note 7 of our Notes to
the Financial Statements.
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, see Notes 7 and 9 of our Notes to the Financial Statements.
40
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
Leverage
We use leverage, or the debt-to-equity ratio, to make various business decisions, including
evaluating and establishing pricing for retail, wholesale, and lease financing, and assessing our
capital structure. We refer to our shareholders interest as equity. We calculate leverage on a
financial statement basis and on a managed basis using the following formulas:
|
|
|
(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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
96.3
|
|
|
$
|
126.5
|
|
|
$
|
139.4
|
|
Equity
|
|
|
11.0
|
|
|
|
10.6
|
|
|
|
13.4
|
|
Financial statement leverage (to 1)
|
|
|
8.8
|
|
|
|
12.0
|
|
|
|
10.4
|
|
The following table shows the calculation of our managed leverage (in billions, except
for ratios):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
96.3
|
|
|
$
|
126.5
|
|
|
$
|
139.4
|
|
Securitized off-balance sheet receivables outstanding
|
|
|
0.1
|
|
|
|
0.6
|
|
|
|
6.0
|
|
Retained interest in securitized off-balance sheet receivables
|
|
|
0.0
|
|
|
|
(0.1
|
)
|
|
|
(0.7
|
)
|
Adjustments for cash, cash equivalents, and marketable securities (a)
|
|
|
(17.3
|
)
|
|
|
(23.6
|
)
|
|
|
(16.7
|
)
|
Adjustments for derivative accounting (b)
|
|
|
(0.2
|
)
|
|
|
(0.4
|
)
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted debt
|
|
$
|
78.9
|
|
|
$
|
103.0
|
|
|
$
|
128.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
11.0
|
|
|
$
|
10.6
|
|
|
$
|
13.4
|
|
Adjustments for derivative accounting (b)
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
Total adjusted equity
|
|
$
|
10.8
|
|
|
$
|
10.4
|
|
|
$
|
13.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed leverage (to 1)
|
|
|
7.3
|
|
|
|
9.9
|
|
|
|
9.8
|
|
|
|
|
(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 believe that managed leverage is useful to our investors because it reflects the way we
manage our business. We retain interests in receivables sold in off-balance sheet securitization
transactions and, with respect to subordinated retained interests, are exposed to credit risk.
Accordingly, we evaluate charge-offs, receivables, and leverage on a managed as well as a financial
statement basis. We also deduct cash and cash equivalents, and marketable securities (excluding
marketable securities related to insurance activities) because they generally correspond to excess
debt beyond the amount required to support our operations and amounts to support on-balance sheet
securitization transactions. We make derivative accounting adjustments to our assets, debt, and
equity positions to reflect the impact of interest rate instruments we use in connection with our
term-debt issuances and securitization transactions. The derivative accounting adjustments related
to these instruments vary over the term of the underlying debt and
securitized funding obligations based on changes in market interest rates. We generally repay our
debt obligations as they mature. As a result, we exclude the impact of these derivative accounting
adjustments on both the
numerator and denominator in order to exclude the interim effects of changes in market
interest rates. For additional information on our use of interest rate instruments and other
derivatives, refer to Item 7A of Part II of our 10-K Report. We believe the managed leverage
measure provides our investors with meaningful information regarding managements decision-making
processes.
41
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
We plan our managed leverage by considering prevailing market conditions and the risk
characteristics of our business. At December 31, 2009, our managed leverage was 7.3 to 1, compared
with 9.9 to 1 a year ago. 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 2009, we distributed $1.5
billion to our parent, which included in the first quarter of 2009 a non-cash distribution of about
$1.1 billion and in the third quarter of 2009 a cash distribution of $400 million and a non-cash
distribution of $31 million for our ownership interest in AB Volvofinans. For additional
information on our planned distributions, see the Outlook section of Item 7 of Part II of our
10-K Report.
Aggregate Contractual Obligations
We are party to certain contractual obligations involving commitments to make payments to
others. Most of these are debt obligations, which are recorded on our balance sheet and disclosed
in our Notes to the Financial Statements. Long-term debt may have fixed or variable interest
rates. For long-term debt with variable rate interest, we estimate the future interest payments
based on projected market interest rates for various floating rate benchmarks received from third
parties. In addition, we enter into contracts with suppliers for purchases of certain services,
including operating lease commitments. These arrangements may contain minimum levels of service
requirements. Our aggregate contractual obligations as of December 31, 2009 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 and
|
|
|
|
Total
|
|
|
2010
|
|
|
2011-2012
|
|
|
2013-2014
|
|
|
Thereafter
|
|
|
|
(in millions)
|
|
Long-term debt obligations*
|
|
$
|
81,205
|
|
|
$
|
26,005
|
|
|
$
|
40,082
|
|
|
$
|
9,933
|
|
|
$
|
5,185
|
|
Interest payments relating to long-term debt
|
|
|
12,053
|
|
|
|
3,500
|
|
|
|
4,319
|
|
|
|
1,745
|
|
|
|
2,489
|
|
Operating lease obligations
|
|
|
87
|
|
|
|
29
|
|
|
|
34
|
|
|
|
17
|
|
|
|
7
|
|
Purchase obligations
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
93,350
|
|
|
$
|
29,539
|
|
|
$
|
44,435
|
|
|
$
|
11,695
|
|
|
$
|
7,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Excludes fair value adjustments of $231 million and unamortized discounts of $525 million.
|
Liabilities recognized for uncertain tax benefits of $614 million are excluded from the
table above. Due to the high degree of uncertainty regarding the timing of future cash flows
associated with income tax liabilities, we are unable to make a reasonably reliable estimate of the
amount and period of payment. For additional information on income taxes, see Note 11 of our Notes
to the Financial Statements.
For additional information on our long-term debt and operating lease obligations, see Notes 10
and 21, respectively, of our Notes to the Financial Statements.
42
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Critical Accounting Estimates
We consider an accounting estimate to be critical if:
|
|
|
The accounting estimate requires us to make assumptions about matters that were highly
uncertain at the time the accounting estimate was made; and
|
|
|
|
|
Changes in the estimate that are reasonably likely to occur from period to period, or
use of different estimates that we reasonably could have used in the current period, would
have a material impact on our financial condition or results of operations.
|
The accounting estimates that are most important to our business involve:
|
|
|
Allowance for credit losses; and
|
|
|
|
|
Accumulated depreciation on vehicles subject to operating leases.
|
Management has discussed the development and selection of these critical accounting estimates
with Fords and our audit committees, and these audit committees have reviewed these estimates and
disclosures.
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. For additional information regarding our allowance
for credit losses, see Note 6 of our Notes to the Financial Statements.
Nature of Estimates Required.
We estimate the probable credit losses inherent in finance
receivables and operating leases based on several factors.
Retail Installment and Lease Portfolio.
The retail installment and lease portfolio is
evaluated using a combination of models and management judgment, and is based on factors such as
historical trends in credit losses and recoveries (including key metrics such as delinquencies,
repossessions, and bankruptcies), the composition of our present portfolio (including vehicle
brand, term, risk evaluation, and new/used vehicles), trends in historical and projected used
vehicle values, and economic conditions. Estimates from models may not fully reflect losses
inherent in the present portfolio, and an element of the allowance for credit losses is established
for the imprecision inherent in loan loss models. Reasons for imprecision include changes in
economic trends and conditions, portfolio composition, and other relevant factors.
Assumptions Used.
We make projections of two key assumptions:
|
|
|
Frequency
the number of finance receivables and operating lease contracts that we
expect will default over a period of time, measured as repossessions; and
|
|
|
|
|
Loss severity
the expected difference between the amount a customer owes us when we
charge off the finance contract and the amount we receive, net of expenses, from selling
the repossessed vehicle, including any recoveries from the customer.
|
We use these assumptions to assist us in estimating our allowance for credit losses.
43
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Sensitivity Analysis.
Changes in the assumptions used to derive frequency and severity would
affect the allowance for credit losses. The effect of the indicated increase/decrease in the
assumptions for our Ford, Lincoln and Mercury brand U.S. retail and lease portfolio is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
|
|
Percentage
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Point
|
|
|
Allowance for
|
|
|
|
|
|
|
Change
|
|
|
Credit Losses
|
|
|
2009 Expense
|
|
|
|
|
|
|
|
(in
millions)
|
|
Assumption
|
|
|
|
|
|
|
|
|
|
|
|
|
Repossession rates*
|
|
|
+/- 0.1pt.
|
|
|
|
$30/$(30)
|
|
|
|
$30/$(30)
|
|
Loss severity
|
|
|
+/- 1.0
|
|
|
|
10/(10)
|
|
|
|
10/(10)
|
|
|
|
|
*
|
|
Reflects the number of finance receivables and operating lease contracts that we expect
will default over a period of time relative to the average number of contracts outstanding.
|
Wholesale and Dealer Loan Portfolio.
The wholesale and dealer loan portfolio is evaluated by
segmenting individual loans into risk pools, which are determined by the risk characteristics of
the loan (such as the amount of the loan, the nature of collateral, and the financial status of the
dealer). The risk pools are analyzed to determine if individual loans are impaired, and an
allowance is estimated for the expected loss of these loans.
Changes in our assumptions affect the
Provision for credit losses
on our consolidated
statement of operations and the allowance for credit losses contained within
Finance receivables,
net
and
Net investment in operating leases
on our balance sheet.
Accumulated Depreciation on Vehicles Subject to Operating Leases
Accumulated depreciation on vehicles subject to operating leases reduces the value of the
leased vehicles in our operating lease portfolio from their original acquisition value to their
expected residual value at the end of the lease term. For additional information on net investment
in operating leases, including the amount of accumulated depreciation, see Note 5 of our Notes to
the Financial Statements.
We monitor residual values each month, and we review the adequacy of our accumulated
depreciation on a quarterly basis. If we believe that the expected residual values for our
vehicles have changed, we revise depreciation to ensure that our net investment in operating leases
(equal to our acquisition value of the vehicles less accumulated depreciation) will be adjusted to
reflect our revised estimate of the expected residual value at the end of the lease term. Such
adjustments to depreciation expense would result in a change in the depreciation rates of the
vehicles subject to operating leases, and are recorded prospectively on a straight-line basis.
Each lease customer has the option to buy the leased vehicle at the end of the lease or to
return the vehicle to the dealer. If the customer returns the vehicle to the dealer, the dealer
may buy the vehicle from us or return it to us. Over the last three years, between 300,000 and
327,000 units of Ford Credits North America operating lease vehicles have been returned to us
annually.
Nature of Estimates Required.
Each operating lease in our portfolio represents a vehicle we
own that has been leased to a customer. At the time we purchase a lease, we establish an expected
residual value for the vehicle. We estimate the expected residual value by evaluating recent
auction values, return volumes for our leased vehicles, industry-wide used vehicle prices,
marketing incentive plans, and vehicle quality data.
Assumptions Used.
Our accumulated depreciation on vehicles subject to operating leases is
based on our assumptions of:
|
|
|
Auction value
the market value of the vehicles when we sell them at the end of the
lease; and
|
|
|
|
|
Return volumes
the number of vehicles that will be returned to us at lease-end.
|
44
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Sensitivity Analysis.
For returned vehicles, we face a risk that the amount we obtain from
the vehicle sold at auction will be less than our estimate of the expected residual value for the
vehicle. At December 31, 2009, if future auction values for our existing portfolio of operating
leases on Ford, Lincoln and Mercury brand vehicles in the United States were to decrease by one
percent from our present estimates, the effect would be to increase the depreciation on these
vehicles by about $50 million. Similarly, if return volumes for our existing portfolio of
operating leases on Ford, Lincoln and Mercury brand vehicles in the United States were to increase
by one percent from our present estimates, the effect would be to increase our depreciation on
these vehicles by about $7 million. These increases in depreciation
would be charged to depreciation expense during the 2010
through 2013 period so that the net investment in operating leases at the end of the lease term for
these vehicles is equal to the revised expected residual value. Adjustments to the amount of
accumulated depreciation on operating leases will be reflected on our balance sheet as
Net
investment in operating leases
and on the consolidated statement of operations in
Depreciation on
vehicles subject to operating leases.
Accounting Standards Codification
FAS No. 168,
The FASB Accounting Standards Codification
TM
and the Hierarchy of
Generally Accepted Accounting Principles a replacement of FASB Statement No. 162
. Issued in
June 2009, this standard establishes the FASB Accounting Standards Codification (Codification) as
the single source of authoritative U.S. generally accepted accounting principles (GAAP),
superseding all previously issued authoritative guidance. All references to pre-Codification GAAP
in our financial statements are replaced with descriptive titles.
Accounting Standards Issued But Not Yet Adopted
Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140.
Issued in June 2009 and codified in December 2009, this standard provides greater transparency
about transfers of financial assets and a companys continuing involvement in the transferred
financial assets. The standard also removes the concept of a qualifying special-purpose entity
from U.S. GAAP, changes the requirements for derecognizing financial assets, and requires
additional disclosures about a transferors continuing involvement with the transferred financial
assets and the related risks retained. This standard applies to transfers occurring on or after
January 1, 2010 and early adoption is prohibited. We do not expect this standard to have a
material impact on our financial condition, results of operations, and financial statement
disclosures.
Amendments to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities.
Issued in June 2009 and codified in December 2009, this standard replaces the quantitative-based
risks and rewards calculation with an approach that is primarily qualitative. The standard also
requires ongoing reassessments of the appropriateness of consolidation, and additional disclosures
about involvement with variable interest entities (VIEs). The standard is effective for us as of
January 1, 2010 and early adoption is prohibited. Nearly all of our VIEs are special purpose
entities used for most of our on-balance sheet securitization transactions and we do not expect
that adoption of this standard to have a material impact on our financial condition, results of
operations, and financial statement disclosures.
45
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Outlook
We expect to be profitable in 2010, but at a reduced level compared with 2009, reflecting
lower average receivables and the non-recurrence of certain favorable factors experienced during
2009. At year-end 2010, we anticipate managed receivables to be in the range of $80 billion to $90
billion. The projected decline in 2010 managed receivables primarily reflects lower industry and
financing volumes in 2009 and 2010 compared with prior years, and the effect of transitioning
Jaguar, Land Rover, Mazda, and some Volvo financing to other providers. 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
|
|
$
|
|
|
|
|
~ 4
|
|
|
|
|
|
Asset-backed commercial paper
|
|
|
6
|
|
|
|
|
|
|
|
7
|
|
Term asset-backed securities
|
|
|
40
|
|
|
|
|
|
|
|
45
|
|
Term debt and other
|
|
|
35
|
|
|
|
|
|
|
|
40
|
|
Equity
|
|
|
10
|
|
|
|
|
|
|
|
11
|
|
Cash, cash equivalents, and marketable securities*
|
|
|
(15
|
)
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
Total funding structure
|
|
$
|
80
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $1.5 billion in 2010. We will continue to assess our
ability to make future distributions based on our available liquidity and managed leverage
objectives.
46
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Cautionary Statement Regarding Forward Looking Statements
Statements included or incorporated by reference herein may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on expectations, forecasts, and assumptions by our management
and involve a number of risks, uncertainties, and other factors that could cause actual results to
differ materially from those stated, including, without limitation, those set forth in Item 1A.
Automotive Related:
|
|
|
Further declines in industry sales volume, particularly in the United States or Europe,
due to financial crisis, deepening recessions, geo-political events or otherwise;
|
|
|
|
|
Decline in Fords market share;
|
|
|
|
|
Continued or increased price competition for Ford vehicles resulting from industry
overcapacity, currency fluctuations or other factors;
|
|
|
|
|
A further increase in or acceleration of the market shift away from sales of trucks,
medium- and large-sized utilities, or other more profitable vehicles, particularly in the
United States;
|
|
|
|
|
Continued or increased high prices for, or reduced availability of, fuel;
|
|
|
|
|
Lower-than-anticipated market acceptance of new or existing Ford products;
|
|
|
|
|
Adverse effects from the bankruptcy of, 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 financial support or take
other measures to ensure supplies of components or materials and could increase Fords
costs, affect Fords liquidity, or cause production disruptions;
|
|
|
|
|
Work stoppages at Ford or supplier facilities or other interruptions of production;
|
|
|
|
|
Single-source supply of components or materials;
|
|
|
|
|
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 Fords requirements for parts or materials where it has entered into
long-term supply arrangements that commit it to purchase minimum or fixed quantities of
certain parts or materials, or to pay a minimum amount to the seller (take-or-pay
contracts);
|
|
|
|
|
Adverse effects on Fords results from a decrease in or cessation of government
incentives related to capital investments;
|
|
|
|
|
Adverse effects on Fords operations resulting from certain geo-political or other
events;
|
|
|
|
|
Substantial levels of indebtedness adversely affecting Fords financial condition or
preventing Ford from fulfilling its debt obligations (which may grow because Ford is able
to incur substantially more debt, including additional secured debt);
|
|
|
|
|
Inability of Ford to implement its One Ford plan;
|
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 or otherwise;
|
|
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|
|
Inability to obtain competitive funding;
|
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|
|
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;
|
|
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|
|
Lower-than-anticipated residual values or higher-than-expected return volumes for
leased vehicles;
|
|
|
|
|
New or increased credit, consumer or data protection or other regulations resulting in
higher costs and/or additional financing restrictions;
|
|
|
|
|
Changes in Fords operations or changes in Fords marketing programs could result in a decline in
our financing volumes;
|
47
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
General:
|
|
|
Fluctuations in foreign currency exchange rates and interest rates;
|
|
|
|
|
Failure of financial institutions to fulfill commitments under committed credit and
liquidity facilities;
|
|
|
|
|
Labor or other constraints on Fords or our ability to restructure its or our business;
|
|
|
|
|
Substantial pension and postretirement healthcare and life insurance liabilities
impairing Fords or our liquidity or financial condition; and
|
|
|
|
|
Worse-than-assumed economic and demographic experience for postretirement benefit plans
(e.g., discount rates, investment returns, and health care cost trends).
|
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.
48
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Overview
We are exposed to a variety of risks in the normal course of our business. Our financial
condition depends on the extent to which we effectively identify, assess, monitor, and manage these
risks. The principal types of risk to our business include:
|
|
|
Market risk
the possibility that changes in interest and currency exchange rates will
adversely affect our cash flow and economic value;
|
|
|
|
|
Counterparty risk
the possibility that a counterparty may default on a derivative
contract or cash deposit;
|
|
|
|
|
Credit risk
the possibility of loss from a customers failure to make payments
according to contract terms;
|
|
|
|
|
Residual risk
the possibility that the actual proceeds we receive at lease
termination will be lower than our projections or return volumes will be higher than our
projections;
|
|
|
|
|
Liquidity risk
the possibility that we may be unable to meet all of our current and
future obligations in a timely manner; and
|
|
|
|
|
Operating risk
the possibility of errors relating to transaction processing and
systems, actions that could result in compliance deficiencies with regulatory standards or
contractual obligations and the possibility of fraud by our employees or outside persons.
|
We manage each of these types of risk in the context of its contribution to our overall global
risk. We make business decisions on a risk-adjusted basis and price our services consistent with
these risks.
Credit, residual and liquidity risks are discussed in Items 1 and 7. A discussion of market
risk (including currency and interest rate risk), counterparty risk, and operating risk follows.
Market Risk
Given the unpredictability of financial markets, we seek to reduce volatility in our cash flow
and economic value from changes in interest rates and currency exchange rates. We use various
financial instruments, commonly referred to as derivatives, to manage market risks. We do not
engage in any trading, market-making, or other speculative activities in the derivative markets.
Our ability to obtain derivatives deteriorated in the first half of 2009 resulting in unhedged
currency exposure from cross-border intercompany lending during 2009. Total unhedged intercompany
loans were $1.5 billion as of March 31, 2009 and increased to $3.8 billion as of June 30, 2009.
Currency exposure from intercompany loans has been fully hedged since August 31, 2009 through
implementation of alternate hedging structures and continued reduction in intercompany loans
resulting from local funding actions. Our overall currency exposure and our hedging requirements
will reduce as we continue to achieve local funding of our operations and explore alternative
business arrangements in markets where local funding is not available.
During 2009, we continued to prioritize the limited available interest rate derivative
capacity for hedging asset backed funding transactions and certain unsecured debt transactions.
Despite the challenges in obtaining derivatives to manage our overall interest rate exposure, the
magnitude of our exposure to changes in interest rates during 2009 remained comparable to 2008,
primarily because of the decline in our managed receivables.
Our strategies to manage market risks are established by the Ford Global Risk Management
Committee (GRMC). The GRMC is chaired by the Chief Financial Officer of Ford, and includes the
Treasurer of Ford and our Chief Financial Officer.
The Ford Treasurers Office is responsible for the execution of our market risk management
strategies. These strategies are governed by written policies and procedures. Separation of
duties is maintained between the strategy and approval of derivative trades, the execution of
derivatives trades and the settlement of cash flows. Regular audits are conducted to ensure that
appropriate controls are in place and that these controls are effective. In addition, the GRMC and
the audit committee of Ford and Ford Credits Boards of Directors review our market risk exposures
and use of derivatives to manage these exposures.
49
Item
7A. Quantitative And Qualitative Disclosures About Market Risk (Continued)
Interest Rate Risk
Nature of Exposure.
Our primary market risk exposure is interest rate risk, and the
particular market risk to which we are most exposed is U.S. dollar LIBOR. Our interest rate risk
exposure results principally from re-pricing risk or differences in the re-pricing
characteristics of assets and liabilities. An instruments re-pricing period is a term used to
describe how an interest rate-sensitive instrument responds to changes in interest rates. It
refers to the time it takes an instruments interest rate to reflect a change in market interest
rates. For fixed-rate instruments, the re-pricing period is equal to the maturity of the
instruments principal, because the principal is considered to re-price only when re-invested in a
new instrument. For a floating-rate instrument, the re-pricing period is the period of time before
the interest rate adjusts to the market rate. For instance, a floating-rate loan whose interest
rate is reset to a market index annually on December 31 would have a re-pricing period of one year
on January 1, regardless of the instruments maturity.
Re-pricing risk arises when assets and the related debt have different re-pricing periods, and
consequently, respond differently to changes in interest rates. As an example, consider a
hypothetical portfolio of fixed-rate assets that is funded with floating-rate debt. If interest
rates increase, the interest paid on debt increases while the interest received on assets remains
fixed. In this case, the hypothetical portfolios cash flows are exposed to changes in interest
rates because its assets and debt have a re-pricing mismatch.
Our receivables consist primarily of fixed-rate retail installment sale and lease contracts
and floating-rate wholesale receivables. Fixed-rate retail installment sale and lease contracts
are originated principally with maturities ranging between two and six years and generally require
customers to make equal monthly payments over the life of the contract. Wholesale receivables are
originated to finance new and used vehicles held in dealers inventory and generally require
dealers to pay a floating rate.
Funding sources consist primarily of securitization transactions and short- and long-term
unsecured debt. In the case of unsecured term debt, and in an effort to have funds available
throughout business cycles, we may borrow at terms longer than the terms of our assets, in most
instances with up to ten year maturities. These debt instruments are principally fixed-rate and
require fixed and equal interest payments over the life of the instrument and a single principal
payment at maturity.
We are exposed to interest rate risk to the extent that a difference exists between the
re-pricing profile of our assets and our debt. Specifically, without derivatives, in the aggregate
our assets would re-price more quickly than our debt.
Risk Management Objective.
Our interest rate risk management objective is to maximize our
economic value while limiting the impact of changes in interest rates. We achieve this objective
by setting an established risk tolerance and staying within the tolerance through the following
risk management process.
Risk Management Process.
Our risk management process involves a short-term and a long-term
evaluation of interest rate risk by considering potential impacts on our near-term cash flow as
well as the economic value of our portfolio of interest rate-sensitive assets and liabilities (our
economic value). Our economic value is a measure of the present value of all future expected cash
flows, discounted by market interest rates, and is equal to the present value of our interest
rate-sensitive assets minus the present value of our interest rate-sensitive liabilities.
Measuring the impact on our economic value is important because it captures the potential long-term
effects of changes in interest rates.
The derivative financial instruments primarily used in our interest rate risk management
process are called interest rate swaps. Our interest rate swaps are agreements with counterparties
to either receive a fixed rate of interest in return for us paying a floating rate of interest, or
receive a floating rate of interest in return for us paying a fixed rate of interest, based upon a
set notional balance. Interest rate swaps are a common tool used by financial institutions to
manage interest rate risk. For additional information on our derivatives, see Note 13 of our Notes
to the Financial Statements.
50
Item 7A. Quantitative And Qualitative Disclosures About Market Risk(Continued)
We determine the sensitivity of our economic value to hypothetical changes in interest rates.
We then enter into interest rate swaps, when available, to economically convert portions of our
floating-rate debt to fixed or our fixed-rate debt to floating to ensure that the sensitivity of
our economic value falls within an established tolerance. As part of our process, we also monitor
the sensitivity of our pre-tax cash flow using simulation techniques. To measure this sensitivity,
we calculate the change in expected cash flows to changes in interest rates over a twelve-month
horizon. This calculation determines the sensitivity of changes in cash flows associated with the
re-pricing characteristics of our interest-rate-sensitive assets, liabilities, and derivative
financial instruments under various hypothetical interest rate scenarios including both parallel
and non-parallel shifts in the yield curve. This sensitivity calculation does not take into
account any future actions we may take to reduce the risk profile that arises from a change in
interest rates. These quantifications of interest rate risk are reported regularly (either monthly
or quarterly depending on the market) to the Treasurer of Ford and our Chief Financial Officer.
The process described above is used to measure and manage the interest rate risk of our
operations in the United States, Canada, and the United Kingdom, which together represented 81% of
our total on-balance sheet finance receivables at December 31, 2009. For our other international
affiliates, we use a technique, commonly referred to as gap analysis, to measure re-pricing
mismatch. This process uses re-pricing schedules that group assets, debt, and swaps into discrete
time-bands based on their re-pricing characteristics. We then enter into interest rate swaps, when
available, which effectively change the re-pricing profile of our debt, to ensure that any
re-pricing mismatch (between assets and liabilities) existing in a particular time-band falls
within an established tolerance.
Quantitative Disclosure.
As of December 31, 2009, in the aggregate our assets re-price faster
than our debt (including the derivative instruments economically hedging the debt). Other things
being equal, this means that during a period of rising interest rates, the interest rates earned on
our assets will increase more rapidly than the interest rates paid on our debt, thereby initially
increasing our pre-tax cash flow. Correspondingly, during a period of falling interest rates, we
would expect our pre-tax cash flow to initially decrease.
To provide a quantitative measure of the sensitivity of our pre-tax cash flow to changes in
interest rates, we use interest rate scenarios that assume a hypothetical, instantaneous increase
or decrease in interest rates of one percentage point across all maturities (a parallel shift),
as well as a base case that assumes that interest rates remain constant at existing levels. 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 in the table below. These
interest rate scenarios are purely hypothetical and do not represent our view of future interest
rate movements.
Our pre-tax cash flow sensitivity as of year-end 2009 and 2008 was as follows:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax Cash Flow Sensitivity given a one
|
|
|
Pre-Tax Cash Flow Sensitivity given a one
|
|
|
|
percentage point instantaneous
increase
in
|
|
|
percentage point instantaneous
decrease
in
|
|
|
|
interest rates
|
|
|
interest rates*
|
|
|
|
(in millions)
|
|
December 31, 2009
|
|
|
$27
|
|
|
|
$(27)
|
|
December 31, 2008
|
|
|
(28)
|
|
|
|
28
|
|
|
|
|
*
|
|
Pre-tax cash flow sensitivity given a one percentage point decrease in interest
rates requires an assumption of negative interest rates in markets where existing
interest rates are below one percent.
|
Based on assumptions included in the analysis, our sensitivity to a one-percentage point
instantaneous increase in interest rates at year-end 2009 was an increase in our pre-tax cash flow
over a twelve-month horizon of $27 million compared to a decrease of $28 million at year-end 2008.
Correspondingly, our pre-tax cash flow sensitivity to a one-percentage point instantaneous decrease
in interest rates at year-end 2009 was a decrease in our pre-tax cash flow over a twelve-month
horizon of $27 million compared to an increase of $28 million at year-end 2008. This change
primarily results from the decline in our managed receivables and our limited ability to obtain
interest rate derivatives.
51
Item 7A. Quantitative And Qualitative Disclosures About Market Risk(Continued)
Additional Model Assumptions.
While the sensitivity analysis presented is our best estimate
of the impacts of the specified assumed interest rate scenarios, our actual results could differ
from those projected. The model we use to conduct this analysis is heavily dependent on
assumptions. Embedded in the model are assumptions regarding the reinvestment of maturing asset
principal, refinancing of maturing debt, replacement of maturing derivatives, exercise of options
embedded in debt and derivatives, and predicted repayment of retail installment sale and lease
contracts ahead of contractual maturity. Our repayment projections ahead of contractual maturity
are based on historical experience. If interest rates or other factors change, our actual
prepayment experience could be different than projected.
Currency Exchange Rate Risk
Our policy is to minimize exposure to changes in currency exchange rates. To meet funding
objectives, we borrow in a variety of currencies, principally U.S. dollars and Euros. We face
exposure to currency exchange rates if a mismatch exists between the currency of our receivables
and the currency of the debt funding those receivables. When possible, we fund receivables with
debt in the same currency, minimizing exposure to exchange rate movements. When a different
currency is used, we may execute the following foreign currency derivatives to convert
substantially all of our foreign currency debt obligations to the local country currency of the
receivables:
|
|
|
Foreign currency swap an agreement to convert non-U.S. dollar long-term debt to U.S.
dollar denominated payments or non-local market debt to local market debt for our
international affiliates; or
|
|
|
|
|
Foreign currency forward an agreement to buy or sell an amount of funds in an agreed
currency at a certain time in the future for a certain price.
|
As a result of this policy, we believe our market risk exposure relating to changes in
currency exchange rates as of December 31, 2009 is insignificant. For additional information on
our derivatives, see Note 13 of our Notes to the Financial Statements.
Derivative Notional Values.
The outstanding notional value of our derivatives at the end of
each of the years indicated was as follows:
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|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in billions)
|
|
Interest rate derivatives
|
Pay-fixed, receive-floating, excluding securitization swaps
|
|
$
|
12
|
|
|
$
|
31
|
|
Pay-floating, receive-fixed, excluding securitization swaps
|
|
|
16
|
|
|
|
22
|
|
Securitization swaps
|
|
|
42
|
|
|
|
83
|
|
Caps and floors
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
|
|
|
Total interest rate derivatives
|
|
$
|
74
|
|
|
$
|
138
|
|
Other Derivatives
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
|
4
|
|
|
|
4
|
|
Foreign currency forwards
|
|
|
4
|
|
|
|
13
|
|
Other
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
|
Total notional value
|
|
$
|
82
|
|
|
$
|
155
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Less than $500 million.
|
The derivatives identified above as securitization swaps are interest rate swaps we entered
into to facilitate certain of our securitization transactions and are included in our pre-tax cash
flow sensitivity analysis detailed in the table above. The decrease in our total derivative
notional value was driven primarily by lower derivative requirements reflecting the decline in our
managed receivables.
Derivative Fair Values.
The fair value of net derivative financial instruments (derivative
assets less derivative liabilities) as reported on our balance sheet as of December 31, 2009 was
$683 million, which was $963 million lower than December 31, 2008. The decrease primarily reflects
lower derivative notional value. For additional information see Note 13 of our Notes to the
Financial Statements.
52
Item 7A. Quantitative And Qualitative Disclosures About Market Risk(Continued)
Counterparty Risk
Counterparty risk relates to the loss we could incur if an obligor or counterparty defaulted
on an investment or a derivative contract. We enter into master agreements with counterparties
that allow netting of certain exposures in order to manage this risk. Exposures primarily relate
to investments in fixed-income instruments and derivative contracts used for managing interest rate
and foreign currency exchange rate risk. We, together with Ford, establish exposure limits for
each counterparty to minimize risk and provide counterparty diversification.
Our approach to managing counterparty risk is forward-looking and proactive, allowing us to
take risk mitigation actions before risks become losses. We establish exposure limits for both net
fair value and future potential exposure, based on our overall risk tolerance and ratings-based
historical default probabilities. The exposure limits are lower for lower-rated counterparties and
for longer-dated exposures. We use a model to assess our potential exposure by tenor, defined at a
95% confidence level. Our exposures are monitored on a regular basis and are included in periodic
reporting to Fords Treasurer and our Chief Financial Officer.
Substantially all of our counterparty exposures are with counterparties that are rated
single-A or better. Our guideline for counterparty minimum long-term ratings is BBB-. For
additional information on our derivatives, see Note 13 of our Notes to the Financial Statements.
Operating Risk
We operate in many locations and rely on the abilities of our employees and computer systems
to process a large number of transactions. Improper employee actions, improper operation of
systems, or unforeseen business interruptions could result in financial loss, regulatory action and
damage to our reputation, and breach of contractual obligations. To address this risk, we maintain
internal control processes that identify transaction authorization requirements, safeguard assets
from misuse or theft, protect the reliability of financial and other data, and minimize the impact
of a business interruption on our customers. We also maintain system controls to maintain the
accuracy of information about our operations. These controls are designed to manage operating risk
throughout our operation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Financial Statements, the accompanying Notes and the Report of Independent Registered
Public Accounting Firm that are filed as part of this Report are listed under Item 15, Exhibits
and Financial Statement Schedules and set forth on pages FC-1 through FC-56 immediately following
the signature pages of this Report.
Selected quarterly financial data (unaudited) for us and our consolidated subsidiaries for
2009 and 2008 are disclosed in Note 20 of the Notes to the Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
53
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Michael E. Bannister, our Chairman of the Board and Chief Executive Officer (CEO), and
Kenneth R. Kent, our Vice Chairman, Chief Financial Officer (CFO) and Treasurer, have performed
an evaluation of the Companys disclosure controls and procedures, as that term is defined in Rule
13a-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act), as of December
31, 2009 and each has concluded that such disclosure controls and procedures are effective to
ensure that information required to be disclosed in our periodic reports filed under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified by the SECs
rules and forms, and such information is accumulated and communicated to management as appropriate
to allow timely decisions regarding required disclosures.
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Companys
internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions or
because the degree of compliance with policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our CEO and CFO,
we conducted an assessment of the effectiveness of our internal control over financial reporting as
of December 31, 2009. The assessment was based on criteria established in the framework
Internal
Control Integrated Framework
, issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management concluded that our internal control over
financial reporting was effective as of December 31, 2009. The effectiveness of the Companys
internal control over financial reporting as of December 31, 2009 has been audited by
PricewaterhouseCoopers LLP (PwC), an independent registered public accounting firm, as stated in
their report which appears herein.
Changes in Internal Control Over Financial Reporting
There were no changes in internal control over financial reporting during the quarter ended
December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
We have none to report.
54
PART III.
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ITEM 10.
|
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Not required.
|
|
|
ITEM 11.
|
|
EXECUTIVE COMPENSATION
|
Not required.
|
|
|
ITEM 12.
|
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
|
Not required.
|
|
|
ITEM 13.
|
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
Not required.
|
|
|
ITEM 14.
|
|
PRINCIPAL ACCOUNTING FEES AND SERVICES
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
Nature of Services
|
|
|
|
|
|
|
|
|
Audit fees
for audit of the financial
statements included in our annual Report
on Form 10-K, reviews of the financial
statements included in our quarterly
reports on Form 10-Q, attestation of the
effectiveness of the Companys internal
controls over financial reporting,
statutory financial statement filings, and
providing comfort letters in connection
with our funding transactions
|
|
$
|
9.9
|
|
|
$
|
10.5
|
|
Audit-related fees
for support of
funding transactions, attestation
services, assistance with interpretation
of accounting standards, and services
related to divestitures
|
|
|
1.9
|
|
|
|
2.5
|
|
Tax fees
for tax compliance and the
preparation of tax returns, tax
consultation, planning and implementation
services, assistance in connection with
tax audits, and tax advice related to
divestitures
|
|
|
0.7
|
|
|
|
1.7
|
|
All other fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
12.5
|
|
|
$
|
14.7
|
|
|
|
|
|
|
|
|
Pre-Approval Policies and Procedures
Fords audit committee has established pre-approval policies and procedures that govern the
engagement of PwC, and the services provided by PwC to Ford Credit are pre-approved in accordance
with Fords policies and procedures. The policies and procedures are detailed as to the particular
services and our audit committee is informed of the services provided to us by PwC, including the
audit fee requests for these services that have been submitted to and approved by Fords audit
committee. The pre-approval policies and procedures do not include delegation of the Ford or Ford
Credit audit committees responsibilities under the Exchange Act to management.
55
PART IV.
|
|
|
ITEM 15.
|
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
(a) 1.
|
|
Financial Statements
|
Report of Independent Registered Public Accounting Firm
Ford Motor Credit Company LLC and Subsidiaries
Consolidated Statement of Operations for the Years Ended December 31, 2009, 2008, and 2007
Consolidated Balance Sheet, December 31, 2009 and 2008
Consolidated Statement of Shareholders Interest/Equity for the Years Ended December 31, 2009,
2008, and 2007
Consolidated Statement of Cash Flows for the Years Ended December 31, 2009, 2008, and 2007
Notes to the Financial Statements
The Consolidated Financial Statements, the Notes to the Financial Statements and the Report of
Independent Registered Public Accounting Firm listed above are filed as part of this Report and are
set forth on pages FC-1 through FC-56 immediately following the signature pages of this report.
(a) 2.
|
|
Financial Statement Schedules
|
Schedules have been omitted because they are not applicable, the information required to be
contained in them is disclosed elsewhere in the Financial Statements or the amounts involved are
not sufficient to require submission.
|
|
|
|
|
Designation
|
|
Description
|
|
Method of Filing
|
|
|
|
|
|
Exhibit 3-A
|
|
Certificate of Formation
of Ford Motor Credit
Company LLC.
|
|
Filed as Exhibit 99.3 to
Ford Motor Credit Company
LLC Current Report on Form
8-K dated May 1, 2007 and
incorporated herein by
reference. File No.
1-6368.
|
|
|
|
|
|
Exhibit 3-B
|
|
Limited Liability Company
Agreement of Ford Motor
Credit Company LLC dated
as of April 30, 2007.
|
|
Filed as Exhibit 99.4 to
Ford Motor Credit Company
LLC Current Report on Form
8-K dated May 1, 2007 and
incorporated herein by
reference. File No.
1-6368.
|
|
|
|
|
|
Exhibit 4-A
|
|
Form of Indenture dated as
of February 1, 1985
between Ford Motor Credit
Company and Manufacturers
Hanover Trust Company
relating to Debt
Securities.
|
|
Filed as Exhibit 4-A to
Ford Motor Credit Company
Registration Statement No.
2-95568 and incorporated
herein by reference.
|
|
|
|
|
|
Exhibit 4-A-1
|
|
Form of First Supplemental
Indenture dated as of
April 1, 1986 between Ford
Motor Credit Company and
Manufacturers Hanover
Trust Company
supplementing the
Indenture designated as
Exhibit 4-A.
|
|
Filed as Exhibit 4-B to
Ford Motor Credit Company
Current Report on Form 8-K
dated April 29, 1986 and
incorporated herein by
reference. File No.
1-6368.
|
|
|
|
|
|
Exhibit 4-A-2
|
|
Form of Second
Supplemental Indenture
dated as of September 1,
1986 between Ford Motor
Credit Company and
Manufacturers Hanover
Trust Company supplementing the
Indenture designated as
Exhibit 4-A.
|
|
Filed as Exhibit 4-B to
Ford Motor Credit Company
Current Report on Form 8-K
dated August 28, 1986 and
incorporated herein by
reference. File No.
1-6368.
|
56
|
|
|
|
|
Designation
|
|
Description
|
|
Method of Filing
|
Exhibit 4-A-3
|
|
Form of Third
Supplemental
Indenture dated as
of March 15, 1987
between Ford Motor
Credit Company and
Manufacturers
Hanover Trust
Company
supplementing the
Indenture
designated as
Exhibit 4-A.
|
|
Filed as Exhibit 4-E to Ford Motor
Credit Company Registration
Statement No. 33-12928 and
incorporated herein by reference.
|
|
|
|
|
|
Exhibit 4-A-4
|
|
Form of Fourth
Supplemental
Indenture dated as
of April 15, 1988
between Ford Motor
Credit Company and
Manufacturers
Hanover Trust
Company
supplementing the
Indenture
designated as
Exhibit 4-A.
|
|
Filed as Exhibit 4-F to
Post-Effective Amendment No. 1 to
Ford Motor Credit Company
Registration Statement No. 33-20081
and incorporated herein by
reference.
|
|
|
|
|
|
Exhibit 4-A-5
|
|
Form of Fifth
Supplemental
Indenture dated as
of September 1,
1990 between Ford
Motor Credit
Company and
Manufacturers
Hanover Trust
Company
supplementing the
Indenture
designated as
Exhibit 4-A.
|
|
Filed as Exhibit 4-G to Ford Motor
Credit Company Registration
Statement No. 33-36946 and
incorporated herein by reference.
|
|
|
|
|
|
Exhibit 4-A-6
|
|
Form of Sixth
Supplemental
Indenture dated as
of June 1, 1998
between Ford Motor
Credit Company and
The Chase Manhattan
Bank supplementing
the Indenture
designated as
Exhibit 4-A.
|
|
Filed as Exhibit 4.1 to Ford Motor
Credit Company Current Report on
Form 8-K dated June 15, 1998 and
incorporated herein by reference.
File No. 1-6368.
|
|
|
|
|
|
Exhibit 4-A-7
|
|
Form of Seventh
Supplemental
Indenture dated as
of January 15, 2002
between Ford Motor
Credit Company and
JPMorgan Chase Bank
supplementing the
Indenture
designated as
Exhibit 4-A.
|
|
Filed as Exhibit 4-I to Amendment
No. 1 to Ford Motor Credit Company
Registration Statement No.
333-75274 and incorporated herein
by reference.
|
|
|
|
|
|
Exhibit 4-A-8
|
|
Form of Eighth
Supplemental
Indenture dated as
of June 5, 2006
between Ford Motor
Credit Company and
JPMorgan Chase Bank
N.A. supplementing
the Indenture
designated as
Exhibit 4-A.
|
|
Filed as Exhibit 4 to Ford Motor
Credit Company Current Report on
Form 8-K dated May 25, 2006 and
incorporated herein by reference.
File No. 1-6368.
|
|
|
|
|
|
Exhibit 10-A
|
|
Copy of Amended and
Restated Support
Agreement dated as
of November 6, 2008
between Ford Motor
Company and Ford
Motor Credit
Company LLC.
|
|
Filed as Exhibit 10
to Ford Motor
Credit Company LLC
Report on Form 10-Q
for the quarter
ended September 30,
2008 and
incorporated herein
by reference. File
No. 1-6368.
|
|
|
|
|
|
Exhibit 10-B
|
|
Copy of Agreement
dated as of
February 1, 1980
between Ford Motor
Company and Ford
Motor Credit
Company.
|
|
Filed as Exhibit
10-X to Ford Motor
Credit Company
Report on Form 10-K
for the year ended
December 31, 1980
and incorporated
herein by
reference. File
No. 1-6368.
|
|
|
|
|
|
Exhibit 10-C
|
|
Copy of Amended and
Restated Agreement
dated as of
December 12, 2006
between Ford Motor
Credit Company and
Ford Motor Company.
|
|
Filed as Exhibit
10.1 to Ford Motor
Credit Company
Current Report on
Form 8-K dated
December 12, 2006
and incorporated
herein by
reference. File
No. 1-6368.
|
|
|
|
|
|
Exhibit 10-D
|
|
Copy of Amended and
Restated Support
Agreement dated as
of September 20,
2004 between Ford
Motor Credit
Company and FCE
Bank plc.
|
|
Filed as Exhibit 10 to Ford Motor
Credit Company Report on Form 10-Q
for the quarter ended September 30,
2004 and incorporated herein by
reference. File No. 1-6368.
|
|
|
|
|
|
Exhibit 10-E
|
|
Copy of Amended and
Restated Tax
Sharing Agreement
dated as of
December 12, 2006
between Ford Motor
Credit Company and
Ford Motor Company.
|
|
Filed as Exhibit 10.2 to Ford Motor
Credit Company Current Report on
Form 8-K dated December 12, 2006
and incorporated herein by
reference. File No. 1-6368.
|
57
|
|
|
|
|
Designation
|
|
Description
|
|
Method of Filing
|
|
|
|
|
|
Exhibit 12
|
|
Ford Motor Credit Company LLC and
Subsidiaries Calculation of Ratio
of Earnings to Fixed Charges.
|
|
Filed with this Report
|
|
|
|
|
|
Exhibit 23
|
|
Consent of Independent Registered
Public Accounting Firm.
|
|
Filed with this Report
|
|
|
|
|
|
Exhibit 24
|
|
Powers of Attorney.
|
|
Filed with this Report
|
|
|
|
|
|
Exhibit 31.1
|
|
Rule 15d-14(a) Certification of CEO.
|
|
Filed with this Report
|
|
|
|
|
|
Exhibit 31.2
|
|
Rule 15d-14(a) Certification of CFO.
|
|
Filed with this Report
|
|
|
|
|
|
Exhibit 32.1
|
|
Section 1350 Certification of CEO.
|
|
Furnished with this Report
|
|
|
|
|
|
Exhibit 32.2
|
|
Section 1350 Certification of CFO.
|
|
Furnished with this Report
|
|
|
|
|
|
Exhibit 99
|
|
Parts I, II (other than Items 6 and
8) and III of Ford Motor Companys
Annual Report on Form 10-K for the
year ended December 31, 2009.
|
|
Incorporated herein by
reference to Ford Motor
Companys Annual Report
on Form 10-K for the year
ended December 31, 2009.
File No. 1-3950.
|
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.
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
Ford Motor Credit Company LLC has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
|
|
FORD MOTOR CREDIT COMPANY LLC
|
|
|
By:
|
/s/ Kenneth R. Kent
|
|
|
|
Kenneth R. Kent
|
|
|
|
Vice Chairman, Chief Financial Officer and Treasurer
|
|
|
|
Date: February 25, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of Ford Motor Credit Company LLC and in the
capacities on the date indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Michael E. Bannister*
(Michael E. Bannister)
|
|
Director, Chairman of the Board and
Chief Executive Officer
(principal executive officer)
|
|
February 25, 2010
|
|
|
|
|
|
/s/ Kenneth R. Kent*
(Kenneth R. Kent)
|
|
Director, Vice Chairman, Chief Financial
Officer and Treasurer
(principal financial officer and
principal accounting officer)
|
|
February 25, 2010
|
|
|
|
|
|
/s/ Lewis W. K. Booth*
(Lewis W. K. Booth)
|
|
Director and Audit Committee Chairman
|
|
February 25, 2010
|
|
|
|
|
|
/s/ Terry D. Chenault*
(Terry D. Chenault)
|
|
Director and Executive Vice President President,
Global Operations,
Technology and Risk Management
|
|
February 25, 2010
|
|
|
|
|
|
/s/ John T. Noone*
(John T. Noone)
|
|
Director and Executive Vice President President,
Global Marketing and Sales
|
|
February 25, 2010
|
|
|
|
|
|
/s/ Neil M. Schloss*
(Neil M. Schloss)
|
|
Director and Audit Committee Member
|
|
February 25, 2010
|
|
|
|
|
|
/s/ Robert L. Shanks*
(Robert L. Shanks)
|
|
Director and Audit Committee Member
|
|
February 25, 2010
|
|
|
|
|
|
*By /s/ Corey M. MacGillivray
|
|
Attorney-in-Fact
|
|
February 25, 2010
|
59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
Ford Motor Credit Company LLC:
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements
of operations, of shareholders interest/equity and of cash flows present fairly, in all material
respects, the financial position of Ford Motor Credit Company LLC and its subsidiaries (the
Company) at December 31, 2009 and December 31, 2008, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2009 in conformity
with accounting principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal Control -
Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Companys management is responsible for these financial statements, for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in Managements Report on Internal Control over
Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these
financial statements and on the Companys internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 25, 2010
FC-1
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Financing revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
4,879
|
|
|
$
|
6,519
|
|
|
$
|
6,343
|
|
Retail
|
|
|
2,940
|
|
|
|
3,270
|
|
|
|
3,475
|
|
Interest supplements and other support costs earned
from affiliated companies
|
|
|
3,725
|
|
|
|
4,774
|
|
|
|
4,592
|
|
Wholesale
|
|
|
921
|
|
|
|
1,721
|
|
|
|
2,132
|
|
Other
|
|
|
76
|
|
|
|
133
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
Total financing revenue
|
|
|
12,541
|
|
|
|
16,417
|
|
|
|
16,716
|
|
Depreciation on vehicles subject to operating leases
|
|
|
(3,857
|
)
|
|
|
(9,019
|
)
|
|
|
(6,188
|
)
|
Interest expense
|
|
|
(5,162
|
)
|
|
|
(7,634
|
)
|
|
|
(8,630
|
)
|
|
|
|
|
|
|
|
|
|
|
Net financing margin
|
|
|
3,522
|
|
|
|
(236
|
)
|
|
|
1,898
|
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums earned, net (Note 2)
|
|
|
100
|
|
|
|
140
|
|
|
|
169
|
|
Other income, net (Note 15)
|
|
|
662
|
|
|
|
957
|
|
|
|
1,753
|
|
|
|
|
|
|
|
|
|
|
|
Total financing margin and other revenue
|
|
|
4,284
|
|
|
|
861
|
|
|
|
3,820
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
1,262
|
|
|
|
1,548
|
|
|
|
1,929
|
|
Provision for credit losses (Note 6)
|
|
|
966
|
|
|
|
1,769
|
|
|
|
588
|
|
Insurance expenses (Note 2)
|
|
|
55
|
|
|
|
103
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,283
|
|
|
|
3,420
|
|
|
|
2,605
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes
|
|
|
2,001
|
|
|
|
(2,559
|
)
|
|
|
1,215
|
|
Provision for/(Benefit from) income taxes (Note 11)
|
|
|
724
|
|
|
|
(1,014
|
)
|
|
|
446
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) from continuing operations
|
|
|
1,277
|
|
|
|
(1,545
|
)
|
|
|
769
|
|
Gain on disposal of discontinued operations (Note 14)
|
|
|
2
|
|
|
|
9
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
1,279
|
|
|
$
|
(1,536
|
)
|
|
$
|
775
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
FC-2
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,882
|
|
|
$
|
15,473
|
|
Marketable securities (Note 3)
|
|
|
6,864
|
|
|
|
8,606
|
|
Finance receivables, net (Note 4)
|
|
|
77,968
|
|
|
|
93,331
|
|
Net investment in operating leases (Note 5)
|
|
|
14,578
|
|
|
|
22,506
|
|
Notes and accounts receivable from affiliated companies
|
|
|
1,090
|
|
|
|
1,047
|
|
Derivative financial instruments (Note 13)
|
|
|
1,862
|
|
|
|
3,791
|
|
Assets held-for-sale (Note 14)
|
|
|
|
|
|
|
214
|
|
Other assets (Note 9)
|
|
|
4,100
|
|
|
|
5,159
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
117,344
|
|
|
$
|
150,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS INTEREST
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
Customer deposits, dealer reserves and other
|
|
$
|
1,082
|
|
|
$
|
1,781
|
|
Affiliated companies
|
|
|
1,145
|
|
|
|
1,015
|
|
|
|
|
|
|
|
|
Total accounts payable
|
|
|
2,227
|
|
|
|
2,796
|
|
Debt (Note 10)
|
|
|
96,333
|
|
|
|
126,458
|
|
Deferred income taxes
|
|
|
1,816
|
|
|
|
2,668
|
|
Derivative financial instruments (Note 13)
|
|
|
1,179
|
|
|
|
2,145
|
|
Liabilities held-for-sale (Note 14)
|
|
|
|
|
|
|
56
|
|
Other liabilities and deferred income (Note 9)
|
|
|
4,809
|
|
|
|
5,438
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
106,364
|
|
|
|
139,561
|
|
|
|
|
|
|
|
|
|
|
Shareholders interest
|
|
|
|
|
|
|
|
|
Shareholders interest
|
|
|
5,149
|
|
|
|
5,149
|
|
Accumulated other comprehensive income
|
|
|
1,052
|
|
|
|
432
|
|
Retained earnings
|
|
|
4,779
|
|
|
|
4,985
|
|
|
|
|
|
|
|
|
Total shareholders interest
|
|
|
10,980
|
|
|
|
10,566
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders interest
|
|
$
|
117,344
|
|
|
$
|
150,127
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
FC-3
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS INTEREST/EQUITY
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income/(Loss)
|
|
|
Non-
|
|
|
|
|
|
|
Stock &
|
|
|
Share-
|
|
|
|
|
|
|
Unrealized
|
|
|
Foreign
|
|
|
|
|
|
|
Controlling
|
|
|
|
|
|
|
Paid-in
|
|
|
holders
|
|
|
Retained
|
|
|
Gain/(Loss)
|
|
|
Currency
|
|
|
Derivative
|
|
|
Interest in
|
|
|
|
|
|
|
Surplus
|
|
|
Interest
|
|
|
Earnings
|
|
|
on Assets
|
|
|
Translation
|
|
|
Instruments
|
|
|
Subsidiaries
|
|
|
Total
|
|
Balance at December 31, 2006
|
|
$
|
5,149
|
|
|
$
|
|
|
|
$
|
5,791
|
|
|
$
|
93
|
|
|
$
|
720
|
|
|
$
|
12
|
|
|
$
|
3
|
|
|
$
|
11,768
|
|
Adjustment for the adoption of accounting for uncertainty in
income taxes
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
Conversion of capital stock and paid-in surplus to shareholders
interest
|
|
|
(5,149
|
)
|
|
|
5,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 comprehensive income/(loss) activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
|
|
|
|
|
|
|
|
775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
775
|
|
Change in value of retained interests in securitized
assets (net of tax of $21)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
Unrealized gain on marketable securities (net of tax of $2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Less: reclassification adjustment for gains on marketable
securities realized in net income (net of tax of $11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
974
|
|
|
|
|
|
|
|
0
|
|
|
|
974
|
|
Net loss on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Less: reclassification adjustment for gain on derivative
instruments realized in net income (net of tax of $7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income/(loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
775
|
|
|
|
(55
|
)
|
|
|
972
|
|
|
|
(12
|
)
|
|
|
0
|
|
|
|
1,680
|
|
Balance at December 31, 2007
|
|
$
|
|
|
|
$
|
5,149
|
|
|
$
|
6,515
|
|
|
$
|
38
|
|
|
$
|
1,692
|
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
13,397
|
|
Sale of subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Adjustment for the adoption of the fair value option (a)
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 comprehensive income/(loss) activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
|
|
|
|
|
|
|
|
(1,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
(1,536
|
)
|
Change in value of retained interests in securitized
assets (net of tax of $18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,259
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income/(loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
(1,530
|
)
|
|
|
(39
|
)
|
|
|
(1,259
|
)
|
|
|
|
|
|
|
0
|
|
|
|
(2,828
|
)
|
Balance at December 31, 2008
|
|
$
|
|
|
|
$
|
5,149
|
|
|
$
|
4,985
|
|
|
$
|
(1
|
)
|
|
$
|
433
|
|
|
$
|
|
|
|
$
|
0
|
|
|
$
|
10,566
|
|
2009 comprehensive income/(loss) activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
|
|
|
|
|
|
|
|
1,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
1,279
|
|
Change in value of retained interests in securitized
assets (net of tax of $1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
619
|
|
|
|
|
|
|
|
|
|
|
|
619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income/(loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
1,279
|
|
|
|
1
|
|
|
|
619
|
|
|
|
|
|
|
|
0
|
|
|
|
1,899
|
|
Distributions (b)
|
|
|
|
|
|
|
|
|
|
|
(1,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
(1,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
|
|
|
$
|
5,149
|
|
|
$
|
4,779
|
|
|
$
|
0
|
|
|
$
|
1,052
|
|
|
$
|
|
|
|
$
|
0
|
|
|
$
|
10,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Refer to Note 3 for additional information.
|
|
(b)
|
|
In the first quarter 2009, a plan was announced to restructure Fords 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 Fords secured term loan under Fords secured credit agreement, pursuant to which we purchased from lenders thereof $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 whereupon it was forgiven. The transaction is reflected in the table above as a $1,054 million distribution, which consists of the fair value of the term loan purchased
plus transaction expenses. In the third quarter 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.
|
The accompanying notes are an integral part of the financial statements.
FC-4
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
1,279
|
|
|
$
|
(1,536
|
)
|
|
$
|
775
|
|
Adjustments to reconcile net income to net cash provided by operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
966
|
|
|
|
1,769
|
|
|
|
588
|
|
Depreciation and amortization
|
|
|
4,502
|
|
|
|
9,667
|
|
|
|
6,778
|
|
Amortization of upfront interest supplements
|
|
|
(1,890
|
)
|
|
|
(1,278
|
)
|
|
|
(550
|
)
|
Net change in deferred income taxes
|
|
|
(959
|
)
|
|
|
(2,688
|
)
|
|
|
(1,382
|
)
|
Net change in other assets
|
|
|
2,331
|
|
|
|
2,539
|
|
|
|
(288
|
)
|
Net change in other liabilities
|
|
|
98
|
|
|
|
124
|
|
|
|
836
|
|
All other operating activities
|
|
|
(802
|
)
|
|
|
531
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,525
|
|
|
|
9,128
|
|
|
|
6,773
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of finance receivables (other than wholesale)
|
|
|
(22,381
|
)
|
|
|
(32,983
|
)
|
|
|
(39,005
|
)
|
Collections of finance receivables (other than wholesale)
|
|
|
31,659
|
|
|
|
34,594
|
|
|
|
37,263
|
|
Purchases of operating lease vehicles
|
|
|
(3,248
|
)
|
|
|
(11,230
|
)
|
|
|
(16,517
|
)
|
Liquidations of operating lease vehicles
|
|
|
7,787
|
|
|
|
7,413
|
|
|
|
7,808
|
|
Net change in wholesale receivables
|
|
|
5,761
|
|
|
|
3,545
|
|
|
|
1,986
|
|
Net change in notes receivable from affiliated companies
|
|
|
161
|
|
|
|
(184
|
)
|
|
|
148
|
|
Purchases of marketable securities
|
|
|
(27,377
|
)
|
|
|
(23,831
|
)
|
|
|
(8,795
|
)
|
Proceeds from sales and maturities of marketable securities
|
|
|
28,185
|
|
|
|
18,427
|
|
|
|
15,974
|
|
Proceeds from sales of receivables
|
|
|
911
|
|
|
|
|
|
|
|
697
|
|
Proceeds from sales of businesses
|
|
|
168
|
|
|
|
4,413
|
|
|
|
167
|
|
Settlements of derivatives
|
|
|
532
|
|
|
|
1,342
|
|
|
|
(188
|
)
|
All other investing activities
|
|
|
250
|
|
|
|
346
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) investing activities
|
|
|
22,408
|
|
|
|
1,852
|
|
|
|
(483
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances of long-term debt
|
|
|
30,944
|
|
|
|
41,720
|
|
|
|
34,373
|
|
Principal payments on long-term debt
|
|
|
(56,199
|
)
|
|
|
(45,090
|
)
|
|
|
(39,311
|
)
|
Change in short-term debt, net
|
|
|
(5,920
|
)
|
|
|
(5,433
|
)
|
|
|
86
|
|
Cash distributions (a)
|
|
|
(400
|
)
|
|
|
|
|
|
|
|
|
All other financing activities
|
|
|
(600
|
)
|
|
|
(352
|
)
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) financing activities
|
|
|
(32,175
|
)
|
|
|
(9,155
|
)
|
|
|
(4,957
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
281
|
|
|
|
(489
|
)
|
|
|
473
|
|
Cumulative correction of a prior period error (b)
|
|
|
(630
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flows from continuing operations
|
|
|
(4,591
|
)
|
|
|
1,336
|
|
|
|
1,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
$
|
15,473
|
|
|
$
|
14,137
|
|
|
$
|
12,331
|
|
Change in cash and cash equivalents
|
|
|
(4,591
|
)
|
|
|
1,336
|
|
|
|
1,806
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
10,882
|
|
|
$
|
15,473
|
|
|
$
|
14,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information for continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
5,429
|
|
|
$
|
7,674
|
|
|
$
|
8,387
|
|
Income taxes paid
|
|
|
1,673
|
|
|
|
2,332
|
|
|
|
1,898
|
|
|
|
|
(a)
|
|
See consolidated statement of shareholders interest/equity for information regarding $1.1 billion of non-cash
distributions in 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.
FC-5
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
Table of Contents
FC-6
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include Ford Motor Credit Company LLC, its
controlled domestic and foreign subsidiaries and joint ventures, and consolidated variable interest
entities (VIEs) in which Ford Motor Credit Company LLC is the primary beneficiary (collectively
referred to herein as Ford Credit, we, our or us). Affiliates that we do not consolidate,
but for which we have significant influence over operating and financial policies, are accounted
for using the equity method. We are an indirect, wholly owned subsidiary of Ford Motor Company
(Ford).
Use of estimates, as determined by management, is required in the preparation of consolidated
financial statements in conformity with U.S. generally accepted accounting principles (GAAP).
Because of the inherent uncertainty involved in making estimates, actual results reported in future
periods might be based upon amounts that differ from those estimates. The accounting estimates
that are most important to our business include the allowance for credit losses and accumulated
depreciation on vehicles subject to operating leases.
We reclassified certain prior year amounts in our consolidated financial statements to conform
to current year presentation.
Liquidity
At December 31, 2009, we had $17.7 billion of cash, cash equivalents and marketable
securities, including $5.2 billion that may only be used to support our on-balance sheet
securitization transactions and $400 million related to our insurance activities. Risks and
uncertainties related to the credit environment may affect our ability to obtain funding and
thereby reduce our future liquidity. If credit markets constrain our ability to obtain funding, we
may need to further reduce the amount of finance receivables and operating leases we purchase or
originate. While challenges remain, we saw improvement in the capital markets in the last three
quarters of 2009 evidenced by improvement in market access and credit spreads.
Risks and uncertainties related to the global economy, the automotive industry, and the credit
environment could materially impact Ford. Uncertainties relating to Fords business also cause
uncertainties that could result in a change to our current business plan. In addition, Fords
ability to satisfy its obligations to us (e.g., interest supplements and other support payments)
could be impacted and, if so, would reduce our future liquidity. We believe, however, Ford will
satisfy its obligations to us. If Ford fails to satisfy its obligations to us, we may use certain
of our obligations to Ford as an offset. However, in the event of a material adverse effect on
Fords financial condition or operations, Ford Credit could be similarly impacted in a material
adverse way.
While there are risks and uncertainties related to the credit environment, the global economy,
and the automotive industry, we believe we have sufficient liquidity to meet our obligations and
operating plan. Accordingly, we have concluded that there is no substantial doubt about our
ability to continue as a going concern, and our financial statements have been prepared on a going
concern basis.
FC-7
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 1. ACCOUNTING POLICIES (Continued)
Nature of Operations
We offer a wide variety of automotive financing products to and through automotive dealers
throughout the world. Our primary financing products fall into three categories:
|
|
|
Retail financing
purchasing retail installment sale contracts and retail lease
contracts from dealers, and offering financing to commercial customers, primarily vehicle
leasing companies and fleet purchases, to lease or purchase vehicle fleets;
|
|
|
|
|
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 working capital, improvements to
dealership facilities, and to purchase or finance dealership real estate.
|
We also service the finance receivables and leases we originate and purchase, make loans to
Ford affiliates, purchase certain receivables of Ford and its subsidiaries and provide insurance
services related to our financing programs.
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: Ford Credit North America (North America Segment) and Ford
Financial International (International Segment). The North America Segment includes our
operations in the United States and Canada. The International Segment includes our operations in
all other countries in which we do business directly or indirectly. For additional financial
information regarding our operations by business segments and operations by geographic regions, see
Note 19.
The majority of our finance receivables and net investment in operating leases are
geographically diversified throughout the North America Segment. In our International Segment,
finance receivables and net investment in operating leases are concentrated in our European
operations.
The predominant share of our business consists of financing Ford vehicles and supporting Ford
dealers. Any extended reduction or suspension of Fords production or sale of vehicles due to a
decline in consumer demand, work stoppage, governmental action, negative publicity or other event,
or significant changes to marketing programs sponsored by Ford, would have an adverse effect on our
business.
Certain subsidiaries are subject to regulatory capital requirements requiring maintenance of
certain minimum capital levels that limit the ability of the subsidiaries to pay dividends.
Noncontrolling Interest
We adopted the Financial Accounting Standards Boards (FASB) revised standard on accounting
for noncontrolling interests on its effective date, January 1, 2009. The presentation and
disclosure requirements of this standard must be applied retrospectively for all periods. This
standard establishes accounting and reporting requirements for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. The standard clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that
should be reported as equity in its consolidated financial statements. Previously, noncontrolling
interests were reflected in our financial statements as
Minority interests in net assets of
subsidiaries
, which was not included in equity. As a result of this standard, our shareholders
interest, net income/(loss), and comprehensive income/(loss) will be reflected as attributable to
either Ford Credit or our noncontrolling interests (if our noncontrolling interests are more than
de minimis). At December 31, 2009, our noncontrolling interests were de minimis. This standard
also required us to incorporate a consolidated statement of comprehensive income.
FC-8
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 1. ACCOUNTING POLICIES (Continued)
Goodwill
We perform annual testing of goodwill during the fourth quarter to determine whether any
impairment has occurred. Goodwill impairment testing is also performed following an allocation of
goodwill to a business to be disposed, or following a triggering event for the long-lived asset
impairment test. Testing is conducted at the reporting unit level, which is the same level as our
operating segments. To test for goodwill impairment, the carrying value of each reporting unit is
compared with its fair value. Fair value is measured relying primarily on the income approach by
applying a discounted cash flow methodology. Our goodwill balance was $12 million at December 31,
2009 and 2008. For the periods presented, we have not recorded any impairment of goodwill.
Foreign Currency Translation
Results of operations and cash flows of our foreign subsidiaries are translated to U.S.
dollars at average-period currency exchange rates. Assets and liabilities are translated at
end-of-period exchange rates. Translation adjustments are related to foreign subsidiaries using
local currency as their functional currency and are reported as a separate component of
Accumulated
other comprehensive income
in
Shareholders interest
. Gains and losses arising from transactions
denominated in a currency other than the functional currency are included in
Other income, net
.
Subsequent Events
We evaluated the effects of all subsequent events from the end of the fourth quarter through
February 25, 2010, the date we filed our financial statements with the U.S. Securities and Exchange
Commission (SEC).
Recently Issued Accounting Standards
FAS No. 168,
The FASB Accounting Standards Codification
TM
and the Hierarchy of
Generally Accepted Accounting Principles a replacement of FASB Statement No. 162
. Issued in
June 2009, this standard establishes the FASB Accounting Standards Codification (Codification) as
the single source of authoritative GAAP, superseding all previously issued authoritative
guidance. All references to pre-Codification GAAP in our financial statements are replaced with
descriptive titles.
Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140.
Issued in June 2009 and codified in December 2009, this standard provides greater transparency
about transfers of financial assets and a companys continuing involvement in the transferred
financial assets. The standard also removes the concept of a qualifying special-purpose entity
from U.S. GAAP, changes the requirements for derecognizing financial assets, and requires
additional disclosures about a transferors continuing involvement with the transferred financial
assets and the related risks retained. This standard applies to transfers occurring on or after
January 1, 2010 and early adoption is prohibited. We do not expect this standard to have a
material impact on our financial condition, results of operations, and financial statement
disclosures.
Amendments to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities.
Issued in June 2009 and codified in December 2009, this standard replaces the quantitative-based
risks and rewards calculation with an approach that is primarily qualitative. The standard also
requires ongoing reassessments of the appropriateness of consolidation, and additional disclosures
about involvement with variable interest entities (VIEs). The standard is effective for us as of
January 1, 2010 and early adoption is prohibited. Nearly all of our VIEs are special purpose
entities used for most of our on-balance sheet securitization transactions and we do not expect
that adoption of this standard to have a material impact on our financial condition, results of
operations, and financial statement disclosures.
FC-9
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 2. INSURANCE
We conduct insurance underwriting operations primarily through The American Road Insurance
Company (TARIC) and its subsidiaries. TARIC is a wholly owned subsidiary of Ford Credit. TARIC
offers a variety of products and services, including contractual liability insurance on extended
service contracts, physical damage insurance covering vehicles at dealer locations and vehicles
in-transit between final assembly plants and dealer locations, physical damage/liability
reinsurance covering Ford dealer daily rental vehicles, and surety bonds issued to Ford and its
subsidiaries.
Insurance premiums earned are reported net of reinsurance. These premiums are earned over
their respective policy periods. Physical damage insurance premiums, including premiums on
vehicles financed at wholesale by us, are recognized as income on a monthly basis. Premiums from
extended service plan contracts and other contractual liability coverages are earned over the life
of the policy based on historical loss experience. Certain costs of acquiring new business are
deferred and amortized over the term of the related policies on the same basis on which premiums
are earned.
Insurance Expenses and Liabilities
Insurance underwriting losses and expenses are reported as
Insurance expenses
. The components
of insurance expenses were as follows for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Insurance claims
|
|
$
|
49
|
|
|
$
|
95
|
|
|
$
|
71
|
|
Claim adjustment expenses
|
|
|
4
|
|
|
|
6
|
|
|
|
5
|
|
Amortization of deferred acquisition costs
|
|
|
2
|
|
|
|
2
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
Insurance expenses
|
|
$
|
55
|
|
|
$
|
103
|
|
|
$
|
88
|
|
|
|
|
|
|
|
|
|
|
|
The liability for reported insurance claims and an estimate of unreported insurance claims,
based on past experience, was $20 million and $30 million at December 31, 2009 and 2008,
respectively, and was included in
Other liabilities and deferred income
.
Reinsurance
TARICs reinsurance activity primarily consists of ceding a majority of its automotive
extended service plan contracts for a ceding commission. Amounts recoverable from reinsurers on
unpaid losses, including incurred but not reported losses, and amounts paid to reinsurers relating
to the unexpired portion of reinsurance contracts are reported in
Other assets
. Ceded insurance
expenses that were deducted from the amounts reported as
Insurance expenses
were $101 million, $133
million and $179 million in 2009, 2008 and 2007, respectively.
The effect of reinsurance on premiums written and earned was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Written
|
|
|
Earned
|
|
|
Written
|
|
|
Earned
|
|
|
Written
|
|
|
Earned
|
|
Direct
|
|
$
|
137
|
|
|
$
|
269
|
|
|
$
|
199
|
|
|
$
|
355
|
|
|
$
|
284
|
|
|
$
|
459
|
|
Assumed
|
|
|
2
|
|
|
|
8
|
|
|
|
8
|
|
|
|
17
|
|
|
|
10
|
|
|
|
17
|
|
Ceded
|
|
|
(70
|
)
|
|
|
(177
|
)
|
|
|
(91
|
)
|
|
|
(232
|
)
|
|
|
(140
|
)
|
|
|
(307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
|
|
$
|
69
|
|
|
$
|
100
|
|
|
$
|
116
|
|
|
$
|
140
|
|
|
$
|
154
|
|
|
$
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FC-10
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 2. INSURANCE (Continued)
Commissions on reinsurance ceded are earned on the same basis as related premiums.
Reinsurance contracts do not relieve TARIC from its obligations to its policyholders. Failure of
reinsurers to honor their obligations could result in losses to TARIC. Therefore, TARIC either
directly or indirectly (via insurance brokers) monitors the underlying business and financial
performance of the reinsurers. In addition, where deemed necessary, TARIC may require collateral
or utilize multiple reinsurers to mitigate concentration risk.
NOTE 3. MARKETABLE SECURITIES
We hold marketable securities that consist primarily of investments in U.S. government and
government-sponsored enterprises.
Investment securities with a maturity date greater than 90 days at the date of the securitys
acquisition are classified as marketable securities.
Trading securities are recorded at fair value with unrealized gains and losses recorded to
Other income, net
. The basis of cost used in determining realized gains and losses is specific
identification. See Note 12 for additional information on fair value measurements.
For all marketable securities held at January 1, 2008 and recorded as available-for-sale or
held-to-maturity, we elected to apply the fair value option and thereafter recorded these
instruments as trading securities. Prior to this election, unrealized gains and losses for
available-for-sale securities were recorded, net of tax, as a separate component of
Accumulated
other comprehensive income
in
Shareholders interest
and the unrealized gains and losses for
held-to-maturity securities were not recognized. This election resulted in the cumulative
after-tax increase of $6 million to the opening balance of
Retained earnings
at January 1, 2008.
Marketable securities acquired subsequent to January 1, 2008 have been recorded as trading
securities.
Investments in Marketable Securities
Investments in trading securities at December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Fair value
|
|
$
|
6,864
|
|
|
$
|
8,606
|
|
Net unrealized gains/(losses) for period
related to instruments still held at
year-end
|
|
|
14
|
|
|
|
(32
|
)
|
In 2007, proceeds of available-for-sale and held-to-maturity securities were $7,900 million
from maturities and $8,074 million from sales resulting in $45 million in gross realized gains and
$5 million in gross realized losses.
FC-11
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 4. 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. 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.
|
Revenue from finance receivables (including direct financing leases) is recognized using the
interest method. Certain origination costs on receivables are deferred and amortized, using the
interest method, over the term of the related receivable as a reduction in financing revenue. The
accrual of interest on receivables is discontinued at the time a receivable is determined to be
uncollectible.
We receive interest supplements and other support payments on certain financing transactions
under agreements with Ford and other affiliates. Income is recognized in a manner that is
consistent with revenue recognition on the underlying financing contracts over the periods that the
related finance receivables are outstanding.
See Note 7 for accounting policy related to receivables classification.
FC-12
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 4. FINANCE RECEIVABLES (Continued)
Finance Receivables, Net
Net finance receivables at December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Retail (including direct financing leases)
|
|
$
|
56,308
|
|
|
$
|
65,475
|
|
Wholesale
|
|
|
22,453
|
|
|
|
27,765
|
|
Other
|
|
|
2,474
|
|
|
|
2,791
|
|
|
|
|
|
|
|
|
Total finance receivables, net of unearned income (a)(b)
|
|
|
81,235
|
|
|
|
96,031
|
|
Less: Unearned interest supplements
|
|
|
(1,932
|
)
|
|
|
(1,296
|
)
|
Less: Allowance for credit losses
|
|
|
(1,335
|
)
|
|
|
(1,404
|
)
|
|
|
|
|
|
|
|
Finance receivables, net
|
|
$
|
77,968
|
|
|
$
|
93,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance receivables subject to fair value (c)
|
|
$
|
75,584
|
|
|
$
|
90,280
|
|
Fair value
|
|
|
76,807
|
|
|
|
87,056
|
|
|
|
|
(a)
|
|
At December 31, 2009 and 2008, includes $0.6 billion and $1.0 billion, respectively, of primarily
wholesale receivables with entities that are reported as consolidated subsidiaries of Ford. The
consolidated subsidiaries include dealerships that are partially owned by Ford and consolidated as
VIEs and also certain overseas affiliates. The associated vehicles that are being financed by us are
reported as inventory on Fords balance sheet.
|
|
(b)
|
|
At December 31, 2009 and 2008, includes finance receivables of $64.4 billion and $73.7 billion,
respectively, that have been sold for legal-purposes in securitization transactions that do not
satisfy the requirements for accounting sale treatment, of which $122 million is reported as inventory
by Ford at December 31, 2009. 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 7 for additional information.
|
|
(c)
|
|
At December 31, 2009 and 2008, excludes $2.4 billion and $3.0 billion, respectively, of certain
receivables (primarily direct financing leases) that are not subject to fair value disclosure
requirements. See Note 12 for fair value methodology.
|
FC-13
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 4. FINANCE RECEIVABLES (Continued)
At December 31, 2009, finance receivables included $663 million owed by the three customers
with the largest receivables balances.
Scheduled maturities of total finance receivables outstanding at December 31, 2009, net of
unearned income, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in Year Ending December 31,
|
|
|
Due After
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2012
|
|
|
Total
|
|
Retail
|
|
$
|
26,584
|
|
|
$
|
16,778
|
|
|
$
|
8,489
|
|
|
$
|
4,457
|
|
|
$
|
56,308
|
|
Wholesale
|
|
|
22,189
|
|
|
|
264
|
|
|
|
0
|
|
|
|
0
|
|
|
|
22,453
|
|
Other
|
|
|
1,260
|
|
|
|
375
|
|
|
|
192
|
|
|
|
647
|
|
|
|
2,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,033
|
|
|
$
|
17,417
|
|
|
$
|
8,681
|
|
|
$
|
5,104
|
|
|
$
|
81,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment may cause actual maturities to differ from scheduled maturities. The above table,
therefore, is not to be regarded as a forecast of future cash collections. For wholesale
receivables, maturities stated above reflect historical trends, as scheduled maturities are
established subsequent to the sale of the vehicle by the dealer.
The aggregate finance receivables balances at December 31 related to accounts past due more
than 60 days which continue to accrue interest were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Retail
|
|
$
|
407
|
|
|
$
|
473
|
|
Wholesale (a)
|
|
|
113
|
|
|
|
213
|
|
Other (a)
|
|
|
38
|
|
|
|
34
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
558
|
|
|
$
|
720
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Prior year figures were revised to conform to current
year presentation.
|
Investment in direct financing leases, which are included in retail finance receivables, were
as follows at December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Minimum lease rentals to be received,
including initial direct costs
|
|
$
|
1,069
|
|
|
$
|
1,489
|
|
Estimated residual values
|
|
|
1,530
|
|
|
|
1,877
|
|
Less: Unearned income
|
|
|
(215
|
)
|
|
|
(314
|
)
|
Less: Allowance for credit losses
|
|
|
(25
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
Net investment in direct financing leases
|
|
$
|
2,359
|
|
|
$
|
3,022
|
|
|
|
|
|
|
|
|
Future minimum rentals from direct financing leases are as follows (in millions): 2010
$510; 2011 $322; 2012 $163; 2013 $53; thereafter $5.
FC-14
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 5. 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.
Rental revenue on operating leases is recognized on a straight-line basis over the term of the
lease. Initial direct costs related to leases are deferred and amortized on a straight-line basis
over the term of the lease. The accrual of revenue on operating leases is discontinued at the time
a receivable is determined to be uncollectible.
We receive interest supplements and other support payments on certain leasing transactions
under agreements with Ford and other affiliates. Income is recognized in a manner that is
consistent with revenue recognition on the underlying financing contracts over the periods that the
related leases are outstanding.
Depreciation expense on vehicles subject to operating leases is provided on a straight-line
basis in an amount necessary to reduce the leased vehicle to its estimated residual value at the
end of the lease term. Our policy is to promptly sell returned off-lease vehicles. We evaluate
our depreciation for leased vehicles on a regular basis taking into consideration various
assumptions, such as expected residual values at lease termination (including residual value
support payments from Ford) and the estimated number of vehicles that will be returned to us.
Adjustments to depreciation expense reflecting revised estimates of expected residual values at the
end of the lease terms are recorded prospectively on a straight-line basis. Upon disposition of
the vehicle, the difference between net book value and actual proceeds (including residual value
support payments from Ford) is recorded as an adjustment to
Depreciation on vehicles subject to
operating leases
.
We evaluate the carrying value of held-and-used long-lived asset groups (such as vehicles
subject to operating leases) for potential impairment when we determine a triggering event has
occurred. When a triggering event occurs, a test for recoverability is performed, comparing
projected undiscounted future cash flows to the carrying value of the asset group. If the test for
recoverability identifies a possible impairment, the asset groups fair value is measured in
accordance with the fair value measurement framework. An impairment charge is recognized for the
amount by which the carrying value of the asset group exceeds its estimated fair value.
During the second quarter of 2008, we recorded a pre-tax impairment charge of $2.1 billion in
Depreciation on vehicles subject to operating leases
representing the amount by which the carrying
value of certain vehicle lines in our lease portfolio exceeded the fair value.
FC-15
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 5. NET INVESTMENT IN OPERATING LEASES (Continued)
Net Investment in Operating Leases
Net investment in operating leases at December 31 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Vehicles, at cost, including initial direct costs
|
|
$
|
20,983
|
|
|
$
|
27,984
|
|
Less: Accumulated depreciation
|
|
|
(6,191
|
)
|
|
|
(5,214
|
)
|
|
|
|
|
|
|
|
Net investment in operating leases before
allowance for credit losses (a)
|
|
|
14,792
|
|
|
|
22,770
|
|
Less: Allowance for credit losses
|
|
|
(214
|
)
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
Net investment in operating leases
|
|
$
|
14,578
|
|
|
$
|
22,506
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
At December 31, 2009 and 2008, includes net investment in operating leases of
$10.4 billion and $15.6 billion, respectively, that have been included in
securitization transactions that do not satisfy the requirements for accounting
sale treatment. These net investment in operating leases are available only for
payment of the debt or other obligations issued or arising in the securitization
transactions; they are not available to pay our other obligations or the claims
of our other creditors until the associated debt or other obligations are
satisfied. Refer to Note 7 for additional information.
|
Future minimum rentals on operating leases are as follows (in millions): 2010 $2,736; 2011
$1,538; 2012 $554; 2013 $119; 2014 $3.
FC-16
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 6. 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.
The allowance for credit losses is estimated using a combination of models and management
judgment and is based on factors such as historical trends in credit losses and recoveries
(including key metrics such as delinquencies, repossessions and bankruptcies), the composition of
our present portfolio (including vehicle brand, term, risk evaluation and new/used vehicles),
trends in historical and projected used vehicle values and economic conditions. Additions to the
allowance for credit losses are made by recording charges to the
Provision for credit losses
on our
consolidated statement of operations. Finance receivables, investment in direct financing leases,
and investment in operating leases are charged to the allowance for credit losses at the earlier of
when an account is deemed to be uncollectible or when an account is 120 days delinquent, taking
into consideration the financial condition of the borrower or lessee, the value of the collateral,
recourse to guarantors and other factors. Recoveries on finance receivables, investment in direct
financing leases, and investment in operating leases previously charged-off as uncollectible are
credited to the allowance for credit losses.
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 years ended
December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
1,668
|
|
|
$
|
1,090
|
|
|
$
|
1,110
|
|
Provision for credit losses
|
|
|
966
|
|
|
|
1,769
|
|
|
|
588
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs before recoveries
|
|
|
1,516
|
|
|
|
1,549
|
|
|
|
1,102
|
|
Recoveries
|
|
|
(421
|
)
|
|
|
(414
|
)
|
|
|
(470
|
)
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
1,095
|
|
|
|
1,135
|
|
|
|
632
|
|
Other changes, principally
amounts related to translation
adjustments and finance
receivables sold
|
|
|
(10
|
)
|
|
|
56
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
Net deductions
|
|
|
1,085
|
|
|
|
1,191
|
|
|
|
608
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
1,549
|
|
|
$
|
1,668
|
|
|
$
|
1,090
|
|
|
|
|
|
|
|
|
|
|
|
Our allowance for credit losses decreased from 2008, primarily reflecting the decline in
receivables and decrease in charge-offs. At December 31, 2009, our allowance for credit losses
included about $215 million, which was based on managements judgment regarding higher retail
installment and lease repossession assumptions and higher wholesale and dealer loan default
assumptions compared with historical trends used in our models. At December 31, 2008, our
allowance for credit losses included about $210 million, which was based on managements judgment
regarding higher severity assumptions. At December 31, 2007, our allowance for credit losses did
not include any incremental amounts based on management judgment.
FC-17
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 7. TRANSFERS OF RECEIVABLES
We securitize finance receivables and net investment 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.
The majority of our transactions do not meet the criteria for selling and derecognizing
financial assets. Accordingly, these assets continue to be reported on our financial statements as
Finance receivables, net
and
Net investment in operating leases
.
We use special purpose entities (SPEs) that are considered variable interest entities
(VIEs) for most of our on-balance sheet securitizations. The SPEs are established for the sole
purpose of financing the securitized financial assets. The SPEs are generally financed through the
issuance of notes or commercial paper into the public or private markets or directly with conduits.
We may purchase subordinated notes of the VIEs in addition to the investment we make as residual
interests holder of the transaction.
We derecognize our financial assets related to our sales of receivables when the following
criteria are met:
|
|
|
The receivables are isolated from us to either bankruptcy-remote SPEs or other
independent entities.
|
|
|
|
|
The receivables are transferred to an entity that has the right to pledge or exchange the
assets or to a qualifying SPE whose beneficial interest holders have the right to pledge or
exchange their beneficial interests.
|
|
|
|
|
We do not maintain control over the receivables. We are not permitted to regain control
over the transferred receivables or cause the return of specific receivables, other than
through a cleanup call, an optional repurchase of the remaining transferred financial
assets at a point where the cost of servicing the outstanding assets becomes burdensome in
relation to the benefits.
|
For off-balance sheet sales of receivables, we retain residual or subordinated interests in
receivables sold and report a gain or loss in the period in which these sales occur. In measuring
the gain or loss on each sale of finance receivables, the carrying value of the receivables
transferred is allocated between the assets sold and the interests retained based on their relative
fair values at the date of sale. Retained interests are recorded at fair value with unrealized
gains recorded, net of tax, as a separate component of
Other comprehensive income/(loss).
Residual
interests in securitizations represent the present value of monthly collections on the sold finance
receivables in excess of amounts needed for payment of the debt and other obligations issued or
arising in the securitization transactions. In our whole-loan sale transactions, we record a gain
or loss on sale and do not retain any interests.
In both off-balance sheet securitization transactions and whole-loan sales, we also typically
retain the servicing rights and generally receive a servicing fee. The fee is recognized as
collected over the remaining term of the related sold finance receivables.
Receivables Classifications
Receivables are accounted for as held-for-investment (HFI) if management has the intent
and ability to hold the receivables for the foreseeable future or until maturity or payoff.
Receivables that are classified as HFI are recorded at cost. The determination of intent and
ability to hold for the foreseeable future is highly judgmental and requires management to make
good faith estimates based on all information available at the time of origination. Once a
decision has been made to sell specific receivables not previously classified as held-for-sale
(HFS), such receivables are transferred into the HFS classification and carried at the lower
of cost or fair value. Any amount by which cost exceeds fair value is accounted for as a
valuation allowance offset to income. We use internally developed quantitative methods to
determine fair value that incorporate appropriate funding pricing and enhancement requirements,
as well as estimates concerning credit losses and prepayments.
FC-18
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 7. TRANSFERS OF RECEIVABLES (Continued)
Regardless of receivable classification, retained interests related to sold receivables
are classified and accounted for as available-for-sale securities. The initial receipt of
retained interests represents a non-cash transfer and subsequent cash flows related to
repayment of the retained interests are recorded as an investing activity.
We classify receivables on a receivable-by-receivable basis. Specific receivables
included in off-balance sheet securitizations or whole-loan sale transactions are usually not
identified until the month in which the sale occurs. Each quarter we make a determination of
whether it is probable that receivables originated during the quarter will be held for the
foreseeable future based on historical receivable sale experience, internal forecasts and
budgets, as well as other relevant, reliable information available through the date of
evaluation. For purposes of this determination, we define probable to mean at least 70% likely
and, consistent with our budgeting and forecasting period, we define foreseeable future to mean
twelve months. We also consider off-balance sheet funding channels in connection with our
quarterly receivable classification determination.
Held-For-Investment
Finance receivables originated during the quarter for which we determine that it is
probable we will hold for the following twelve months are classified as HFI and carried at
amortized cost. All retail and wholesale receivables are classified as HFI at origination
during all periods presented. Cash flows resulting from the purchase of these receivables that
are originally classified as HFI are recorded as an investing activity. Once a decision has
been made to sell specifically identified receivables that were originally classified as HFI
and the receivables are sold in the same reporting period, the receivables are reclassified as
HFS and simultaneously removed from the balance sheet. The fair value adjustment is
incorporated and recognized in the net gain on sale of receivables component in
Other income,
net
line in the consolidated statement of operations. If the receivables have been selected
for an off-balance sheet transaction that has not occurred at the end of the reporting period,
the receivables are reclassified as HFS and a valuation adjustment is recorded in
Other income,
net
to recognize the receivables at the lower of cost or fair value. Cash flows resulting from
the sale of the receivables that were originally classified as HFI are recorded as an investing
activity since GAAP requires the statement of cash flow presentation to be based on the
original classification of the receivables.
Held-For-Sale
Finance receivables originated during the quarter for which we determine that it is not
probable we will hold for the following twelve months are classified as HFS and carried at the
lower of cost or fair value. Cash flows resulting from the purchase of these receivables are
recorded as an operating activity. The valuation adjustment, if applicable, is recorded in
Other income, net
to recognize the receivables at the lower of cost or fair value. Once
specifically identified receivables that were originally classified as HFS are sold, the
receivables are removed from the balance sheet and the fair value adjustment is incorporated
into the book value of receivables for purposes of determining the gain on sale. Cash flows
resulting from the sale of the receivables that were originally classified as HFS are recorded
as an operating activity. As a result of our accounting for any retained interests related to
sold receivables as available-for-sale securities, there will be a net operating cash outflow
impact for these receivables since the cash flows related to the retained interests will be
classified as investing cash inflows. As of December 31, 2009 and 2008, there were no finance
receivables classified as held-for-sale.
FC-19
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 7. TRANSFERS OF RECEIVABLES (Continued)
On-Balance Sheet Securitization Transactions
Most of our securitization transactions do not satisfy the requirements for accounting sale
treatment and, therefore, the securitized assets and related liabilities are included in our
financial statements. Cash and cash equivalent balances relating to securitization transactions
are used only to support the on-balance sheet securitization transactions. The receivables and net
investment in operating leases that have been included in securitization transactions have been
sold for legal purposes and are only available for payment of the debt and other obligations issued
or arising in the 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 VIEs.
The following table shows the assets and the liabilities related to our securitization
transactions that were included in our financial statements for the years ended December 31 (in
billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Finance
|
|
|
|
|
|
|
|
|
|
|
Finance
|
|
|
|
|
|
|
|
|
|
|
Receivables & Net
|
|
|
|
|
|
|
|
|
|
|
Receivables & Net
|
|
|
|
|
|
|
Cash & Cash
|
|
|
Investment in
|
|
|
Related
|
|
|
Cash & Cash
|
|
|
Investment in
|
|
|
Related
|
|
|
|
Equivalents
|
|
|
Operating Leases
|
|
|
Debt
|
|
|
Equivalents
|
|
|
Operating Leases
|
|
|
Debt
|
|
Retail
|
|
$
|
3.4
|
|
|
$
|
44.9
|
|
|
$
|
35.7
|
|
|
$
|
3.3
|
|
|
$
|
51.6
|
|
|
$
|
42.6
|
|
Wholesale
|
|
|
0.5
|
|
|
|
19.5
|
|
|
|
10.6
|
|
|
|
1.2
|
|
|
|
22.1
|
|
|
|
17.6
|
|
Net investment in
operating leases
|
|
|
1.3
|
|
|
|
10.4
|
|
|
|
6.6
|
|
|
|
1.0
|
|
|
|
15.6
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (a)
|
|
$
|
5.2
|
|
|
$
|
74.8
|
|
|
$
|
52.9
|
|
|
$
|
5.5
|
|
|
$
|
89.3
|
|
|
$
|
72.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Includes debt of $46.2 billion and $62.0 billion at December 31, 2009 and 2008, respectively, issued by VIEs of which we are the
primary beneficiary. The carrying values of our assets securing the debt issued by these VIEs were $4.0 billion and $3.9 billion of
cash and cash equivalents, $41.7 billion and $41.9 billion of retail receivables, $16.5 billion and $19.6 billion of wholesale
receivables, and $10.4 billion and $15.6 billion of net investment in operating leases at December 31, 2009 and 2008, respectively.
Refer to Note 8 for further discussion regarding our VIEs.
|
Our financial performance related to our securitization transactions for the years ended
December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative expense
|
|
$
|
328
|
|
|
$
|
985
|
|
|
$
|
228
|
|
Interest expense
|
|
|
1,998
|
|
|
|
3,323
|
|
|
|
3,470
|
|
Most of these securitization transactions utilize VIEs. Refer to Note 8 for information
concerning the financial performance of securitization transactions that utilized VIEs.
FC-20
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 7. TRANSFERS OF RECEIVABLES (Continued)
Many 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 12 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 December 31 were as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Derivative
|
|
|
Derivative
|
|
|
Derivative
|
|
|
Derivative
|
|
|
|
Asset
|
|
|
Liability
|
|
|
Asset
|
|
|
Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization entities
|
|
$
|
69
|
|
|
$
|
579
|
|
|
$
|
59
|
|
|
$
|
995
|
|
Ford Credit (excluding securitization
entities)
|
|
|
383
|
|
|
|
27
|
|
|
|
887
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative financial instruments
|
|
$
|
452
|
|
|
$
|
606
|
|
|
$
|
946
|
|
|
$
|
1,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Securitization Transactions
We recognized a loss of $25 million, income of $199 million and income of $391 million in
2009, 2008 and 2007, respectively, of investment and other income related to the sales of
receivables. These amounts are included in
Other income, net
. Also, we received cash flows of $68
million, $281 million and $401 million in 2009, 2008 and 2007, 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.
FC-21
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 8. VARIABLE INTEREST 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 is the entity that absorbs the majority of the risk for the
variability in the VIEs assets. A variable interest is a contractual, ownership, or other
interest that changes with changes in the fair value of the VIEs net assets. Nearly all of our
VIEs are special purpose entities used for most of our on-balance sheet securitizations.
We use qualitative analysis to determine whether or not we need to consolidate a VIE. We
consider the rights and obligations conveyed by variable interests to determine whether we will
absorb a majority of a VIEs expected losses, receive a majority of its expected residual returns,
or both. If so, we consolidate the VIE.
The liabilities recognized as a result of consolidating these VIEs do not necessarily
represent additional claims on our general assets, rather, they represent claims against the
specific assets of the consolidated VIEs. Conversely, 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.
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. The asset-backed securities are secured by the expected cash flows from
finance receivables and interests in net investments in operating leases. The expected cash flows
from these assets have been legally sold but 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.
Therefore, the assets continue to be consolidated by us.
The VIE 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 prepayment 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 and
the collections therefore, depends upon the sale of Ford vehicles; and
|
|
|
|
|
Net investment in operating lease transactions
vehicle residual value risk, consumer
credit risk and prepayment risk.
|
FC-22
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 8. VARIABLE INTEREST ENTITIES (Continued)
As residual interest holder, we are exposed to the underlying residual and credit risk of the
collateral, and may be exposed to interest rate risk. However, this risk is not incremental to the
exposure we have on the underlying assets. Our residual interest in these transactions was $27.2
billion and $18.2 billion at December 31, 2009 and 2008, respectively. 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. 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. Although not contractually required, we regularly support our
wholesale securitization programs by repurchasing receivables of a dealer from the VIEs when the
dealers 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 level. The cash contributions
were zero and $179 million at December 31, 2009 and December 31, 2008 and ranged from zero to $1.4
billion and zero to $2.2 billion during 2009 and 2008, respectively. In addition, while not
contractually required, we may purchase the commercial paper issued by our FCAR Owner Trust retail
securitization program.
During 2009, we elected to provide additional enhancements or repurchase specific senior or
subordinated notes in order to address market conditions. From time to time, we renegotiate the
terms of our funding commitments and may reallocate the commitments globally. 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. In certain securitization transactions, we have dynamic
enhancements where we are required to support the performance of the securitization transactions by
purchasing additional subordinated notes or increasing cash reserves.
VIEs that are exposed to interest rate or currency risk have reduced their exposure by
entering into derivatives. In certain instances, we have entered into offsetting derivative
transactions with the VIE to protect the VIE from these risks that are not mitigated through
derivative transactions between the VIE and its counterparty. See Note 13 for additional
information regarding our derivatives.
Finance receivables and net investment in operating leases that secure the debt of the VIE
remain on our balance sheet and therefore are not included in the VIE assets shown in the following
table. As of December 31, 2009, the carrying values of the assets were $41.7 billion of retail
receivables, $16.5 billion of wholesale receivables, and $10.4 billion of net investment in
operating leases. As of December 31, 2008, the carrying values of the assets were $41.9 billion of
retail receivables, $19.6 billion of wholesale receivables, and $15.6 billion of net investment in
operating leases.
FC-23
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 8. VARIABLE INTEREST ENTITIES (Continued)
The total consolidated VIE assets and liabilities that support our securitization transactions
reflected in our December 31 balance sheets were as follows (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Cash & Cash
|
|
|
|
|
|
|
Cash & Cash
|
|
|
|
|
|
|
Equivalents (a)
|
|
|
Debt (b)
|
|
|
Equivalents (a)
|
|
|
Debt (b)
|
|
VIEs by asset-class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
3.1
|
|
|
$
|
31.2
|
|
|
$
|
2.7
|
|
|
$
|
34.5
|
|
Wholesale
|
|
|
0.4
|
|
|
|
8.4
|
|
|
|
1.0
|
|
|
|
15.5
|
|
Net investment in operating leases
|
|
|
0.5
|
|
|
|
6.6
|
|
|
|
0.2
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4.0
|
|
|
$
|
46.2
|
|
|
$
|
3.9
|
|
|
$
|
62.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Additionally, we have cash and cash equivalents securing the obligations of the VIEs that are not assets of the
VIEs and were $925 million and $949 million as of December 31, 2009 and 2008, respectively.
|
|
(b)
|
|
Certain notes issued by the VIEs to affiliated companies served as collateral for accessing the European Central
Bank open market operations program. This external funding of $1.8 billion and $308 million at December 31, 2009
and 2008, respectively, was not reflected as a liability of the VIEs and is excluded from the table above, but was
included in our consolidated liabilities.
|
Our exposure based on the fair value of derivative instruments related to securitization
programs at December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Derivative Asset
|
|
$
|
55
|
|
|
$
|
46
|
|
Derivative Liability
|
|
|
528
|
|
|
|
808
|
|
The financial performance of the consolidated VIEs that support our securitization
transactions for the years ending December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Derivative
|
|
|
|
|
|
|
Derivative
|
|
|
|
|
|
|
(Income)/
|
|
|
Interest
|
|
|
(Income)/
|
|
|
Interest
|
|
|
|
Expense
|
|
|
Expense
|
|
|
Expense
|
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIEs by asset-class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
262
|
|
|
$
|
957
|
|
|
$
|
684
|
|
|
$
|
1,725
|
|
Wholesale
|
|
|
(3
|
)
|
|
|
248
|
|
|
|
(47
|
)
|
|
|
706
|
|
Net investment in operating leases
|
|
|
80
|
|
|
|
473
|
|
|
|
178
|
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
339
|
|
|
$
|
1,678
|
|
|
$
|
815
|
|
|
$
|
3,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIEs of which we are not the primary beneficiary
We also have investments in certain joint ventures determined to be VIEs of which we are not
the primary beneficiary. These joint ventures provide consumer and dealer financing in their
respective markets. The joint ventures are financed by external debt and additional subordinated
interest of the joint venture partners. The risks and rewards associated with our interests in
these joint ventures are based primarily on ownership percentages. Our investments in these joint
ventures are accounted for as equity method investments and are included in
Other assets.
Our
maximum exposure to any potential losses associated with these VIEs is limited to our equity
investments, and amounted to $67 million and $109 million at December 31, 2009 and 2008,
respectively.
FC-24
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 9. 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 December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Accrued interest, rents and other non-finance receivables
|
|
$
|
1,070
|
|
|
$
|
1,223
|
|
Deferred charges including unamortized dealer commissions
|
|
|
665
|
|
|
|
740
|
|
Collateral held for resale, at net realizable value
|
|
|
624
|
|
|
|
633
|
|
Investment in used vehicles held for resale, at net realizable value
|
|
|
458
|
|
|
|
603
|
|
Prepaid reinsurance premiums and other
reinsurance receivables
|
|
|
275
|
|
|
|
385
|
|
Property and equipment, net of accumulated depreciation of $348 and
$316 at December 31, 2009 and 2008, respectively
|
|
|
177
|
|
|
|
207
|
|
Investment in non-consolidated affiliates
|
|
|
123
|
|
|
|
529
|
|
Retained interests in securitized assets
|
|
|
26
|
|
|
|
92
|
|
Other
|
|
|
682
|
|
|
|
747
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
4,100
|
|
|
$
|
5,159
|
|
|
|
|
|
|
|
|
Other liabilities and deferred income at December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Income taxes payable (a)
|
|
$
|
1,328
|
|
|
$
|
1,647
|
|
Deferred income
|
|
|
1,111
|
|
|
|
1,330
|
|
Interest payable
|
|
|
1,007
|
|
|
|
1,315
|
|
Unrecognized tax benefits
|
|
|
596
|
|
|
|
269
|
|
Unearned insurance premiums
|
|
|
315
|
|
|
|
452
|
|
Other
|
|
|
452
|
|
|
|
425
|
|
|
|
|
|
|
|
|
Total other liabilities and deferred income
|
|
$
|
4,809
|
|
|
$
|
5,438
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
During the second quarter 2009, we purchased $3.4 billion principal amount of
Fords unsecured, nonconvertible securities for an aggregate cost of $1.1 billion
(including transaction costs and accrued and unpaid interest payments for such
tendered debt securities) and transferred the securities to Ford in satisfaction of
$1.1 billion of our tax liabilities to Ford.
|
FC-25
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 10. DEBT
We have asset-backed commercial paper programs in the United States, with sales to qualified
institutional investors. We also obtain other short-term funding from the sale 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 is recorded on our balance sheet at fair value upon issuance and subsequently reported at
amortized cost (with the exception of fair value adjustments related to debt in designated hedge
relationships
See Note 13 for more policy information). Debt due within one year at issuance is
classified as short-term. Debt due after one year at issuance is classified as long-term. Fees and
cost directly related to the issuance of debt are capitalized within
Other assets
and amortized
over the life of the debt to
Interest expense
using the interest method. Gains and losses on the
extinguishment of debt are recorded in
Other income, net.
FC-26
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 10. DEBT (Continued)
Debt
At December 31, debt was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rates
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Contractual (a)
|
|
|
Average (b)
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed commercial paper (c)
|
|
|
0.9
|
%
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
$
|
6,369
|
|
|
$
|
11,503
|
|
Other asset-backed short-term debt (c)
|
|
|
2.6
|
%
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
4,482
|
|
|
|
5,569
|
|
Ford Interest Advantage (d)
|
|
|
2.7
|
%
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
3,680
|
|
|
|
1,958
|
|
Other short-term debt (e)
|
|
|
4.2
|
%
|
|
|
8.7
|
%
|
|
|
|
|
|
|
|
|
|
|
891
|
|
|
|
1,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt
|
|
|
2.0
|
%
|
|
|
4.5
|
%
|
|
|
3.0
|
%
|
|
|
5.2
|
%
|
|
|
15,422
|
|
|
|
20,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior indebtedness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable within one year (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,053
|
|
|
|
16,003
|
|
Notes payable after one year (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,124
|
|
|
|
35,148
|
|
Asset-backed debt (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,952
|
|
|
|
26,501
|
|
Notes payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,076
|
|
|
|
28,638
|
|
Unamortized Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(525
|
)
|
|
|
(251
|
)
|
Fair value adjustments (f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt (g)
|
|
|
5.4
|
%
|
|
|
6.1
|
%
|
|
|
5.1
|
%
|
|
|
6.0
|
%
|
|
|
80,911
|
|
|
|
106,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
4.8
|
%
|
|
|
5.8
|
%
|
|
|
4.8
|
%
|
|
|
5.8
|
%
|
|
$
|
96,333
|
|
|
$
|
126,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of debt (h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
97,962
|
|
|
$
|
110,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate characteristics of debt
payable after one year (i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,932
|
|
|
$
|
35,144
|
|
Variable interest rates (generally based
on LIBOR or other short-term rates)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,268
|
|
|
|
28,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,200
|
|
|
$
|
63,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Fourth quarter average contractual rates exclude the effects of derivatives and facility
fees.
|
|
(b)
|
|
Fourth quarter 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 7 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 $1,074 million and $1,369
million at December 31, 2009 and 2008, respectively. Interest accrued is reported in
Other
liabilities and deferred income
and
Accounts payable Affiliated companies
. See Note 12 for
fair value methodology.
|
|
(i)
|
|
Represents asset-backed and unsecured notes payable after one year excluding unamortized
discount and fair value adjustments related to designated hedges. Excludes the effect of
interest rate swap agreements.
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Debt with affiliated companies
|
|
|
|
|
|
|
|
|
Other short-term debt
|
|
$
|
403
|
|
|
$
|
65
|
|
Notes payable within one year
|
|
|
40
|
|
|
|
345
|
|
Notes payable after one year
|
|
|
121
|
|
|
|
120
|
|
|
|
|
|
|
|
|
Total debt with affiliated companies
|
|
$
|
564
|
|
|
$
|
530
|
|
|
|
|
|
|
|
|
FC-27
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 10. DEBT (Continued)
The nominal interest rate for our floating rate demand notes issued and offered under our Ford
Interest Advantage program ranged from 2.3% to 2.6% as of December 31, 2009 depending on the amount
invested.
Our overall full year weighted-average effective interest rate (borrowing cost), including the
effect of interest rate swap agreements and facility fees, was 4.9% and 5.6% for 2009 and 2008,
respectively.
The average term of the outstanding commercial paper was 34 days at December 31, 2009 and 40
days at December 31, 2008. Short-term and long-term debt matures at various dates through 2048.
Maturities are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 (a)
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter (b)
|
|
|
Total
|
|
Unsecured debt maturities
|
|
$
|
11,624
|
|
|
$
|
11,465
|
|
|
$
|
7,117
|
|
|
$
|
4,810
|
|
|
$
|
3,687
|
|
|
$
|
5,045
|
|
|
$
|
43,748
|
|
Asset-backed debt maturities
|
|
|
29,803
|
|
|
|
15,304
|
|
|
|
6,196
|
|
|
|
1,429
|
|
|
|
7
|
|
|
|
140
|
|
|
|
52,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt maturities (c)
|
|
$
|
41,427
|
|
|
$
|
26,769
|
|
|
$
|
13,313
|
|
|
$
|
6,239
|
|
|
$
|
3,694
|
|
|
$
|
5,185
|
|
|
$
|
96,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Includes $15,422 million for short-term and $26,005 million for long-term debt.
|
|
(b)
|
|
Approximately $3.7 billion of unsecured debt matures between 2015 and 2020 with the remaining balance maturing after 2030.
|
|
(c)
|
|
Amounts exclude fair value adjustments of $231 million and unamortized discounts of $525 million.
|
Certain of these obligations are denominated in currencies other than the currency of the
issuing entitys country. Foreign currency swap and forward agreements are used to hedge the
exposure to changes in exchange rates of these obligations.
Debt Repurchases.
In 2009, through private market transactions, we repurchased an aggregate
of $3.5 billion principal amount of our outstanding notes for $3.5 billion in cash. As a result,
we recorded a pre-tax gain of $16 million, net of unamortized premiums and discounts.
FC-28
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 10. DEBT (Continued)
Credit Facilities
At December 31, 2009, we and our subsidiaries, including FCE Bank plc (FCE), had $1.3
billion of contractually-committed unsecured credit facilities with financial institutions, of
which $645 million were available for use. Of the credit facilities available for use, $276
million expire in 2010, $308 million expire in 2011 and $61 million expire in 2012. Of the $1.3
billion of contractually-committed credit facilities, almost all are FCE worldwide credit
facilities. The FCE worldwide credit facilities may be used, at FCEs option, by any of FCEs
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 (for example, debt-to-equity limitations and minimum net worth requirements) and credit
rating triggers that could limit our ability to obtain funding.
In addition, at December 31, 2009, we had $9.3 billion of contractually-committed liquidity
facilities provided by banks to support our FCAR program. Of the $9.3 billion of
contractually-committed liquidity facilities, $4.4 billion expire in 2010 and $4.9 billion expire
in 2012. 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 December
31, 2009, $9.3 billion of FCARs bank liquidity facilities were available to support FCARs
asset-backed commercial paper, subordinated debt or FCARs purchase of our asset-backed securities.
At December 31, 2009, the outstanding commercial paper balance for the FCAR program was $6.4
billion of which $1 million was held by us and none was issued to the U.S. Federal Reserves
Commercial Paper Funding Facility.
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 $23.2 billion at December 31, 2009 ($10.8
billion retail, $8.1 billion wholesale and $4.3 billion supported by various retail, lease, or
wholesale assets) of which $7.4 billion are commitments to FCE. These committed liquidity programs
have varying maturity dates, with $20.2 billion having maturities within the next twelve months (of
which $6.7 billion relates to FCE commitments), and the remaining balance having maturities between
March 2011 and December 2011. While there is a risk of non-renewal of some of these committed
liquidity programs, which could lead to a reduction in the size of these programs and/or higher
costs, our capacity in excess of eligible receivables would enable us to absorb some reductions.
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. At December 31, 2009, $11.2 billion of these
commitments were in use. These programs are free of material adverse change clauses, restrictive
financial covenants 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.
FC-29
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 11. INCOME TAXES
Effective May 1, 2007, we converted our form of organization from a Delaware corporation to a
Delaware LLC and became a disregarded entity for United States income tax purposes. In addition,
Fords consolidated United States federal and state income tax returns include certain of our
domestic subsidiaries. In accordance with our intercompany tax sharing agreement with Ford, United
States income tax liabilities or credits are allocated to us generally on a separate return basis
calculated as if we were taxable as a corporation. The
Provision for/(Benefit from) income taxes
for the years ended December 31 was estimated as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
United States federal
|
|
$
|
1,130
|
|
|
$
|
1,184
|
|
|
$
|
1,402
|
|
Foreign
|
|
|
203
|
|
|
|
213
|
|
|
|
145
|
|
State and local
|
|
|
105
|
|
|
|
176
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
1,438
|
|
|
|
1,573
|
|
|
|
1,662
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
United States federal
|
|
|
(619
|
)
|
|
|
(2,110
|
)
|
|
|
(1,095
|
)
|
Foreign
|
|
|
(14
|
)
|
|
|
(135
|
)
|
|
|
(48
|
)
|
State and local
|
|
|
(81
|
)
|
|
|
(342
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(714
|
)
|
|
|
(2,587
|
)
|
|
|
(1,216
|
)
|
|
|
|
|
|
|
|
|
|
|
Provision for/(Benefit from)
income taxes
|
|
$
|
724
|
|
|
$
|
(1,014
|
)
|
|
$
|
446
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the
Provision for/(Benefit from) income taxes
with the United States
statutory tax rate as a percentage of
Income/(Loss) before income taxes
, excluding equity in net
income of affiliated companies, net income attributable to noncontrolling interests, and income
from discontinued operations, is shown below for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Effect of (in percentage points):
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local income taxes
|
|
|
0.6
|
|
|
|
4.4
|
|
|
|
1.8
|
|
Investment income not subject to tax or
subject to tax at reduced rates
|
|
|
|
|
|
|
0.0
|
|
|
|
(0.1
|
)
|
Other
|
|
|
0.6
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
36.2
|
%
|
|
|
39.6
|
%
|
|
|
36.7
|
%
|
|
|
|
|
|
|
|
|
|
|
FC-30
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 11. INCOME TAXES (Continued)
Deferred tax assets and liabilities reflect the estimated tax effect of accumulated temporary
differences between assets and liabilities for financial reporting purposes and those amounts as
measured by tax laws and regulations. The components of deferred tax assets and liabilities at
December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
$
|
1,756
|
|
|
$
|
1,869
|
|
Net operating losses and foreign tax credits
|
|
|
178
|
|
|
|
455
|
|
Employee benefit plans
|
|
|
117
|
|
|
|
144
|
|
Other
|
|
|
372
|
|
|
|
322
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
2,423
|
|
|
|
2,790
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Leasing transactions
|
|
|
2,245
|
|
|
|
3,206
|
|
Finance receivables
|
|
|
515
|
|
|
|
786
|
|
Sales of receivables
|
|
|
713
|
|
|
|
747
|
|
Other
|
|
|
463
|
|
|
|
494
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
3,936
|
|
|
|
5,233
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
1,513
|
|
|
$
|
2,443
|
|
|
|
|
|
|
|
|
Under our intercompany tax sharing agreement with Ford, United States income tax liabilities
or credits are allocated to us, generally on a separate return basis. In this regard, the deferred
tax assets related to foreign tax credits and alternative minimum tax represent amounts primarily
due from Ford. Under our tax sharing agreement with Ford, we are generally paid for these assets
at the earlier of our use on a separate return basis or their expiration.
Under our intercompany tax sharing agreement with Ford, we earn interest on net tax assets and
pay interest on certain tax liabilities. Interest earned by us under this agreement is included in
Other income, net
. Interest expense due to Ford under this agreement is included in
Interest
expense
.
FC-31
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 11. INCOME TAXES (Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at January 1
|
|
$
|
289
|
|
|
$
|
421
|
|
|
$
|
363
|
|
Increase tax positions in prior years
|
|
|
321
|
|
|
|
48
|
|
|
|
55
|
|
Increase tax positions in current year
|
|
|
11
|
|
|
|
3
|
|
|
|
17
|
|
Decrease tax positions in prior years
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
Settlements
|
|
|
(3
|
)
|
|
|
(173
|
)
|
|
|
0
|
|
Lapse of statute of limitations
|
|
|
(4
|
)
|
|
|
(7
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance, at December 31
|
|
$
|
614
|
|
|
$
|
289
|
|
|
$
|
421
|
|
|
|
|
|
|
|
|
|
|
|
The amount of unrecognized tax benefits at December 31, 2009, 2008 and 2007 that would affect
the effective tax rate if recognized was $120 million, $127 million and $109 million, respectively.
We do not believe it is reasonably possible that the total amounts of unrecognized tax
benefits will significantly increase or decrease during the next twelve months.
We have settled our U.S. federal income tax deficiencies related to tax years prior to 2006 in
accordance with our intercompany tax sharing agreement with Ford. The Ford consolidated return is
currently under examination for the 2006 and 2007 tax years.
Examinations by tax authorities have been completed through 1999 in Germany, 2004 in Canada,
and 2006 in the United Kingdom.
We recognize accrued interest expense related to unrecognized tax benefits in jurisdictions
where we file tax returns separate from Ford and income tax related penalties in
Provision
for/(Benefit from) income taxes
. During 2009, 2008 and 2007, we recorded approximately $23 million
of net tax related interest expense, $4 million in net tax related interest income and $8 million
in net tax related interest expense, respectively, in our consolidated statement of operations. As
of December 31, 2009 and 2008, we had recorded a net payable of $28 million and $5 million,
respectively, for tax related interest.
FC-32
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 12. FAIR VALUE MEASUREMENTS
Our financial statements reflect certain assets and liabilities measured 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 only include finance receivables and debt. The fair value of these items are presented
together with the related carrying value in Notes 4 and 10, respectively.
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. The availability of observable inputs varies by instrument and depends on a
variety of factors including the type of instrument, whether the instrument is actively traded, and
other characteristics particular of the transaction. For many financial instruments, pricing
inputs are readily observable in the market, the valuation methodology used is widely accepted by
market participants, and the valuation does not require significant management discretion. For
other financial instruments, pricing inputs are less observable in the marketplace and may require
management judgment.
We assess the inputs used to measure fair value using a three-tier hierarchy based on the
extent to which inputs used in measuring fair value are observable in the market.
|
|
|
Level 1
inputs include quoted prices for identical instruments and are the most
observable.
|
|
|
|
|
Level 2
inputs include quoted prices for similar assets and observable inputs such as
interest rates, currency exchange rates and yield curves.
|
|
|
|
|
Level 3
inputs are not observable in the market and include managements judgments
about the assumptions market participants would use in pricing the asset or liability.
|
For instruments measured using Level 3 inputs, a reconciliation of the beginning and ending
balances is disclosed.
Valuation Methodologies
Cash Equivalents Financial Instruments.
Cash and all highly liquid investments with a
maturity of 90 days or less at date of purchase are classified as
Cash and cash equivalents.
We
use quoted prices where available and industry-standard valuation models using market-based inputs
when quoted prices are unavailable.
Marketable Securities.
Investments in securities with a maturity date greater than 90 days at
the date of purchase are classified as marketable securities. To measure fair value, we use quoted
market prices where available and industry-standard valuation models using market-based inputs when
quoted prices are unavailable.
FC-33
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 12. FAIR VALUE MEASUREMENTS (Continued)
Derivative Financial Instruments.
We estimate the fair value of our derivatives using
industry standard valuation models. These models project future cash flows and discount the future
amounts to a present value using market-based expectations for interest rates, foreign exchange
rates and the contractual terms of the derivative instruments.
We include an adjustment for non-performance risk in the fair value of derivative instruments.
The adjustment reflects the full credit default spread swap (CDS) spread applied to a net
exposure, by counterparty. We use our counterpartys 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 where there is
illiquidity for a particular currency or for longer-dated instruments. For longer-dated
instruments with regards to which observable interest rates or foreign exchange rates are not
available for all periods through maturity, we hold the last available data point constant through
maturity. For securitization interest rate swaps, we use management judgment in estimating timing
of cash flows which may vary based on actual repayments of securitized contracts.
Retained Interests in Securitized Assets.
The fair value of retained interests is estimated
based on the present value of monthly collections on the sold finance receivables in excess of
amounts needed for payment of the debt and other obligations issued or arising in the
securitization transactions and is calculated using a discounted cash flow analysis. We estimate
the fair value of retained interests using internal valuation models, market inputs and our own
assumptions. The three key assumptions that affect the valuation of the retained interests are
credit losses, prepayment speed, and the discount rate.
Finance Receivables.
The fair value of finance receivables is generally calculated using
discounted cash flow models that incorporate appropriate funding pricing and enhancement
requirements, as well as estimates concerning credit losses and prepayments.
Debt.
The fair value of debt is estimated based upon quoted market prices, current market
rates for similar debt with approximately the same remaining maturities, or discounted cash flow
models utilizing current market rates.
FC-34
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 12. FAIR VALUE MEASUREMENTS (Continued)
Input Hierarchy
The following summarizes the fair values by input hierarchy for financial instruments measured
at fair value on a recurring basis for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
1,455
|
|
|
|
407
|
|
|
|
1,862
|
|
Retained interests in securitized assets
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
5,331
|
|
|
$
|
3,563
|
|
|
$
|
437
|
|
|
$
|
9,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
|
|
|
$
|
604
|
|
|
$
|
575
|
|
|
$
|
1,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
604
|
|
|
$
|
575
|
|
|
$
|
1,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Excludes $7,514 million 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 $2,789 million.
|
|
(b)
|
|
Includes certificates of deposits and time deposits with maturities greater than 90 days on date of purchase.
|
FC-35
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 12. FAIR VALUE MEASUREMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
|
$
|
655
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
655
|
|
Government-sponsored enterprises
|
|
|
|
|
|
|
4,221
|
|
|
|
|
|
|
|
4,221
|
|
Corporate debt
|
|
|
|
|
|
|
167
|
|
|
|
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents
financial instruments (a)
|
|
|
655
|
|
|
|
4,388
|
|
|
|
|
|
|
|
5,043
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
|
|
6,177
|
|
|
|
|
|
|
|
|
|
|
|
6,177
|
|
Government-sponsored enterprises
|
|
|
|
|
|
|
1,924
|
|
|
|
|
|
|
|
1,924
|
|
Corporate debt
|
|
|
|
|
|
|
111
|
|
|
|
5
|
|
|
|
116
|
|
Mortgage-backed
|
|
|
|
|
|
|
275
|
|
|
|
|
|
|
|
275
|
|
Equity
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
Government
non U.S.
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
Other liquid investments (b)
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
|
6,236
|
|
|
|
2,365
|
|
|
|
5
|
|
|
|
8,606
|
|
Derivative financial instruments
|
|
|
|
|
|
|
2,882
|
|
|
|
909
|
|
|
|
3,791
|
|
Retained interests in securitized assets
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
6,891
|
|
|
$
|
9,635
|
|
|
$
|
1,006
|
|
|
$
|
17,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
|
|
|
$
|
1,155
|
|
|
$
|
990
|
|
|
$
|
2,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
1,155
|
|
|
$
|
990
|
|
|
$
|
2,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Excludes $3,084 million 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 $7,346 million.
|
|
(b)
|
|
Includes certificates of deposits and time deposits with maturities greater than 90 days on date of purchase.
|
FC-36
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 12. 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 for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value at
|
|
|
Total Realized
|
|
|
|
|
|
|
Transfers
|
|
|
Fair Value at
|
|
|
Gains/(Losses)
|
|
|
|
December 31,
|
|
|
/Unrealized
|
|
|
Net Purchases/
|
|
|
Into/(Out of)
|
|
|
December 31,
|
|
|
on Instruments
|
|
|
|
2008
|
|
|
Gains/(Losses)
|
|
|
(Settlements)
|
|
|
Level 3
|
|
|
2009
|
|
|
Still Held (a)
|
|
Marketable securities
|
|
$
|
5
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
(1
|
)
|
Derivative financial
instruments, net
|
|
|
(81
|
)
|
|
|
(98
|
)
|
|
|
11
|
|
|
|
|
|
|
|
(168
|
)
|
|
|
(77
|
)
|
Retained interests in
securitized assets
|
|
|
92
|
|
|
|
9
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
26
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16
|
|
|
$
|
(90
|
)
|
|
$
|
(64
|
)
|
|
$
|
|
|
|
$
|
(138
|
)
|
|
$
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
For those assets and liabilities still held at reporting date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value at
|
|
|
Total Realized
|
|
|
|
|
|
|
Net Transfers
|
|
|
Fair Value at
|
|
|
Gains/(Losses)
|
|
|
|
January 1,
|
|
|
/Unrealized
|
|
|
Net Purchases/
|
|
|
Into/(Out of)
|
|
|
December 31,
|
|
|
on Instruments
|
|
|
|
2008
|
|
|
Gains/(Losses)
|
|
|
(Settlements)
|
|
|
Level 3
|
|
|
2008
|
|
Still Held (a)
|
|
Marketable securities
|
|
$
|
|
|
|
$
|
0
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
5
|
|
|
$
|
0
|
|
Derivative financial
instruments, net
|
|
|
(30
|
)
|
|
|
(15
|
)
|
|
|
(6
|
)
|
|
|
(30
|
)
|
|
|
(81
|
)
|
|
|
(63
|
)
|
Retained interests in
securitized assets
|
|
|
653
|
|
|
|
49
|
|
|
|
(610
|
)
|
|
|
|
|
|
|
92
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
623
|
|
|
$
|
34
|
|
|
$
|
(611
|
)
|
|
$
|
(30
|
)
|
|
$
|
16
|
|
|
$
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
For those assets and liabilities still held at reporting date.
|
FC-37
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 12. 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 period ending December
31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Total Realized
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
/Unrealized
|
|
|
|
Other Income, net
|
|
|
Income/(Loss)
|
|
|
Interest Expense
|
|
|
Gains/(Losses)
|
|
Marketable securities
|
|
$
|
(1
|
)
|
|
$
|
0
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
Derivative financial instruments, net
|
|
|
(99
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(98
|
)
|
Retained interests in securitized assets
|
|
|
9
|
|
|
|
0
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(91
|
)
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Total Realized
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
/Unrealized
|
|
|
|
Other Income, net
|
|
|
Income/(Loss)
|
|
|
Interest Expense
|
|
|
Gains/(Losses)
|
|
Marketable securities
|
|
$
|
|
|
|
$
|
0
|
|
|
$
|
|
|
|
$
|
0
|
|
Derivative financial instruments, net
|
|
|
1
|
|
|
|
(28
|
)
|
|
|
12
|
|
|
|
(15
|
)
|
Retained interests in securitized assets
|
|
|
107
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
108
|
|
|
$
|
(86
|
)
|
|
$
|
12
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FC-38
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 12. FAIR VALUE MEASUREMENTS (Continued)
Items Measured at Fair Value on a Nonrecurring Basis
The following summarizes the fair values of items measured at fair value on a nonrecurring
basis for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Total
Gains/(Losses)
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-sale finance receivables (a)
|
|
$
|
|
|
|
$
|
911
|
|
|
$
|
|
|
|
$
|
911
|
|
|
$
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in operating leases (b)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,414
|
|
|
$
|
9,414
|
|
|
$
|
(2,086
|
)
|
|
|
|
(a)
|
|
During the third quarter of 2009, we recorded a valuation allowance of $52 million related to held-for-sale finance
receivables. The fair value was determined based on the market approach and reflected information from an independent bid for
the assets. The loss was recorded to
Other income, net.
The receivables were sold on October 1, 2009.
|
|
(b)
|
|
In accordance with FASBs standard on impairments of long-lived assets, we recorded a pre-tax impairment of $2.1 billion
during the second quarter of 2008 related to certain vehicle lines included in our
Net investment in operating leases.
The fair
value used to determine the impairment was based on the income approach and was measured by discounting the contractual payments
and estimated auction proceeds. The discount rate reflected hypothetical market assumptions regarding borrowing rates, credit
loss patterns and residual value risk.
|
NOTE 13. 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 currency exchange contracts including forwards are used to manage
foreign exchange exposure. The vast majority of 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 only enter into
transactions that we believe will be highly effective at offsetting the underlying risk.
Interest Rate Risk.
We face exposure to interest rate risk when assets and the related debt
have different re-pricing periods and, consequently, respond differently to changes in interest
rates. We may execute the following interest rate derivatives in our interest rate risk management
process to better match the re-pricing characteristics of our interest-sensitive assets and
liabilities based on our established tolerances:
|
|
|
Interest rate swap
an agreement to convert fixed-rate interest payments to floating or
floating-rate interest payments to fixed; or
|
|
|
|
|
Interest rate cap/floor
an agreement to limit exposure to floating interest rates in
which we receive the amount by which the floating rate exceeds (cap) or drops below (floor)
a certain threshold.
|
FC-39
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 13. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Currency Exchange Rate Risk.
We face exposure to currency exchange rate fluctuations if a
mismatch exists between the currency of our receivables and the currency of the debt funding those
receivables. When possible, we fund receivables with debt in the same currency, minimizing
exposure to exchange rate movements. When funding is in a different currency, we may execute the
following foreign currency derivatives to convert our foreign currency debt obligations to the
currency of the receivables:
|
|
|
Foreign currency swap
an agreement to convert non-U.S. dollar long-term debt to U.S.
dollar denominated payments or non-local market debt to local market debt for our
international affiliates; or
|
|
|
|
|
Foreign currency forward
an agreement to buy or sell an amount of funds in an agreed
currency at a certain time in the future for a certain price.
|
We have also used foreign currency exchange derivatives to hedge the net assets of certain
foreign entities to offset the translation and economic exposures related to our investment in
these entities. Presently, we have no active derivatives hedging our net investment in foreign
operations.
All derivative instruments are recognized on the balance sheet at fair value. 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.
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. Cash flows
associated with designated hedges are reported in the same category as the underlying hedged item.
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.
Fair Value Hedges
. We use certain derivatives to reduce the risk of changes in the fair value
of liabilities. We have designated certain receive-fixed, pay-float interest rate swaps as fair
value hedges of fixed-rate debt under the long-haul method of assessing effectiveness. The risk
being hedged is the risk of changes in the fair value of the hedged debt attributable to changes in
the benchmark interest rate. We use regression analysis to assess hedge effectiveness. If the
hedge relationship is deemed to be highly effective, we record the changes in the fair value of the
hedged debt related to the risk being hedged in
Debt
with the offset in
Other income, net
. The
change in fair value of the related derivative (excluding accrued interest) also is recorded in
Other income, net
. Hedge ineffectiveness, recorded directly in earnings, is the difference between
the change in fair value of the derivative and the change in the fair value of the hedged item that
is attributable to the changes in the benchmark interest rate.
When a derivative is de-designated from a fair value hedge relationship, or when the
derivative in a fair value hedge relationship is terminated before maturity, the fair value
adjustment to the hedged debt continues to be reported as part of the basis of the item and is
amortized over its remaining life. The exchange of cash associated with fair value hedges is
reported in
Cash flows from operating activities
in our consolidated statement of cash flows.
FC-40
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 13. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Derivatives Not Designated as Hedging Instruments.
We report changes in the fair value of
derivatives not designated as hedging instruments in
Other income, net
. The earnings impact
primarily relates to changes in fair value of interest rate derivatives, which are included in
evaluating our overall risk management objective, and foreign currency derivatives, which are
substantially offset by the revaluation of foreign denominated debt. The exchange of cash
associated with derivatives not designated as hedging instruments is reported in
Cash flows from
investing activities
in our consolidated statement of cash flows.
We enter into master agreements with counterparties that generally allow for netting of
certain exposures. To ensure consistency in our treatment of derivative and non-derivative
exposures with regard to these agreements, we do not net our derivative position by counterparty
for purposes of balance sheet presentation and disclosure.
Consistent with the FASBs new standard on disclosures for derivative instruments and hedging
activities effective January 1, 2009, in this initial year of adoption, we have elected to not
present earlier periods for comparative purposes.
Income Effect of Derivative Financial Instruments
The following table summarizes the pre-tax gain/(loss) for each type of hedge designation for
the year ending December 31 (in millions):
|
|
|
|
|
|
|
Gain/(Loss)
|
|
|
|
Recognized in Income
|
|
|
|
2009
|
|
Fair value hedges
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
Net interest settlements and accruals excluded from the assessment of hedge effectiveness
|
|
$
|
164
|
|
Ineffectiveness (a)
|
|
|
(13
|
)
|
|
|
|
|
Total
|
|
$
|
151
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
Interest rate contracts
|
|
$
|
(77
|
)
|
Foreign exchange forward contracts (b)
|
|
|
(300
|
)
|
Cross currency interest rate swap contracts (b)
|
|
|
12
|
|
|
|
|
|
Total
|
|
$
|
(365
|
)
|
|
|
|
|
|
|
|
(a)
|
|
Hedge ineffectiveness reflects a $46 million loss on derivatives and a $33 million gain on hedged items in 2009.
|
|
(b)
|
|
Gains/(Losses) related to foreign currency derivatives were substantially offset by net revaluation impacts on foreign denominated debt, which were also
recorded in
Other income, net
.
|
We report net interest settlements and accruals on fair value hedges (which are excluded from
the assessment of hedge effectiveness) in
Interest expense
, with the exception of foreign currency
revaluation on accrued interest ($2 million gain for the full year 2009), which we report 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
.
FC-41
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 13. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Balance Sheet Effect of Derivative Financial Instruments
The following table summarizes the estimated fair value of our derivative financial
instruments at December 31, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
.
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, foreign currency exchange
rates or commodity volumes and prices.
At December 31, 2009, 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 $6 million and
our derivative liabilities by $15 million.
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 December 31, 2009 is approximately $2 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.
See Note 12 for additional information regarding fair value measurements.
FC-42
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 14. 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 by
segment.
We classify disposal groups as held for sale when the sale is probable within one year and the
disposal group is available for immediate sale in its present condition. A disposal group is
classified as a discontinued operation when the criteria to be classified as held for sale have
been met and we will not have any significant involvement with the disposal group after the sale.
The assets and liabilities of held-for-sale disposal groups are presented in the aggregate in the
current period balance sheet.
We perform an impairment test on a disposal group to be discontinued, held for sale, or
otherwise disposed. We estimate fair value under the market approach to approximate the expected
proceeds to be received. An impairment charge is recognized when the carrying value of the
disposal group exceeds the estimated fair value less transaction costs.
North America Segment
Triad Financial Corporation.
In 2005, we completed the sale of Triad Financial Corporation
(Triad). We received additional proceeds pursuant to a contractual agreement entered into at the
closing of the sale, and recognized after-tax gains of $2 million, $9 million and $6 million in
2009, 2008 and 2007, respectively, 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 (Primus Thailand), 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 approximately $173 million, and we recognized a de minimis pre-tax
gain in
Other income, net
.
The assets and liabilities of Primus Thailand classified as held-for-sale at December 31, 2008
were summarized as follows (in millions):
|
|
|
|
|
|
|
2008
|
|
Assets
|
|
|
|
|
Finance receivables, net
|
|
$
|
210
|
|
Other assets
|
|
|
4
|
|
|
|
|
|
Total assets held-for-sale
|
|
$
|
214
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Total accounts payable
|
|
$
|
14
|
|
Debt
|
|
|
41
|
|
Other liabilities
|
|
|
1
|
|
|
|
|
|
Total liabilities held-for-sale
|
|
$
|
56
|
|
|
|
|
|
FC-43
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 14. DIVESTITURES AND OTHER ACTIONS (Continued)
FCE Swiss Branch
. During the fourth quarter of 2008, FCE sold the assets of its Swiss branch
to an affiliated company, Volvo Auto Bank Deutschland GmbH (VAB) in Germany, a subsidiary of
Ford. As a result of the sale, we reduced
Finance receivables, net
by approximately $800 million,
and recognized foreign currency translation adjustments of approximately $16 million as a pre-tax
gain on sale in
Other income, net
. VAB now provides vehicle financing in Switzerland through its
own Swiss branch.
Nordic Operations
. During the second quarter of 2008, we completed the creation of a new
legal entity and transferred into it the majority of our business and assets from Denmark, Finland,
Norway and Sweden. Also in the second quarter, we sold 50% of the new legal entity. As a result
of the sale, we reduced
Finance receivables, net
by approximately $1.7 billion, and recognized a
pre-tax gain in
Other income, net
of approximately $85 million, net of transaction costs and
including $35 million of foreign currency translation adjustments. We report our ownership
interest in the new legal entity in
Other assets
as an equity method investment. The new legal
entity supports the sale of Ford vehicles in these markets.
PRIMUS Financial Services Inc
. In April 2008, we completed the sale of 96% of our ownership
interest in PRIMUS Financial Services Inc., our operation in Japan that offered automotive retail
and wholesale financing of Ford and Mazda vehicles. As a result of the sale,
Finance receivables,
net
were reduced by approximately $1.8 billion,
Debt
was reduced by approximately $252 million, and
we recognized a pre-tax gain of $22 million, net of transaction costs and including $28 million of
foreign currency translation adjustments, in
Other income, net.
Included in the foreign currency
translation adjustments is the recognition of $3 million relating to a matured net investment
hedge. We report our remaining ownership interest in
Other assets
as a cost method investment.
Primus Finance and Leasing, Inc
. During the second quarter of 2008, we completed the sale of
our 60% ownership interest in Primus Finance and Leasing, Inc. (Primus Philippines), our
operation in the Philippines that offered automotive retail and wholesale financing of Ford and
Mazda vehicles. We also completed the sale of our 40% ownership in PFL Holdings, Inc., a holding
company in the Philippines that owned the remaining 40% ownership interest in Primus Philippines.
As a result of the sale, we recognized a pre-tax gain of $5 million, net of transaction costs and
including $1 million of foreign currency translation adjustments, in
Other income, net.
NOTE 15. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Interest and investment income
|
|
$
|
149
|
|
|
$
|
496
|
|
|
$
|
899
|
|
Gains/(Losses) on derivatives (a)
|
|
|
(376
|
)
|
|
|
1,392
|
|
|
|
(183
|
)
|
Currency revaluation gains/(losses) (b)
|
|
|
554
|
|
|
|
(1,708
|
)
|
|
|
105
|
|
Investment and other income related to
sales of receivables (c)
|
|
|
(25
|
)
|
|
|
199
|
|
|
|
391
|
|
Other
|
|
|
360
|
|
|
|
578
|
|
|
|
541
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
$
|
662
|
|
|
$
|
957
|
|
|
$
|
1,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Gains/(Losses) related to foreign currency derivatives are substantially offset by currency
revaluation gain/loss impacts on foreign denominated debt. See Note 13 for detail by derivative
instrument and risk type.
|
|
(b)
|
|
Includes net gains of $316 million in pre-tax earnings related to unhedged currency exposure
primarily from cross-border intercompany lending in 2009.
|
|
(c)
|
|
Included in 2009 is a $52 million valuation allowance for Australian finance receivables
sold in the fourth quarter. See Note 14 for additional information regarding the sale of
Australias finance receivables.
|
FC-44
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 16. 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 by
segment.
The cost of voluntary employee separation actions is recorded at the time of employee
acceptance, unless the acceptance requires explicit approval by us. The costs of conditional
voluntary separations are accrued when all conditions are satisfied. The costs of involuntary
separation programs are accrued when management has approved the program and the affected employees
are identified.
North America Segment
In the first quarter 2009, we announced plans to restructure our U.S. operations to meet
changing business conditions, including the decline in our receivables. The restructuring affected
servicing, sales and central operations and eliminated about 1,200 staff and agency positions, or
about 20% of our U.S. staff. The reductions occurred in 2009 through attrition, retirements and
involuntary separations. In 2009, we recognized pre-tax charges of $42 million in
Operating
expenses
as a result of these actions.
In 2009, we recognized pre-tax charges of $2 million in
Operating expenses
for employee
separation actions in Canada. These separations were substantially completed by the end of 2009.
In 2007, we recognized pre-tax charges of $40 million in
Operating expenses
for employee
separation actions (excluding costs for retirement plan and postretirement health care and life
insurance benefits) announced in 2006 in the United States and in 2007 in Canada. These actions
were associated with our business transformation initiative to consolidate branches into our
existing service centers in North America. In 2008, we released the remaining $2 million of this
reserve. During 2007, we also incurred charges of $72 million for retirement plan and
postretirement health care and life insurance benefits related to these actions.
International Segment
In 2009, we recognized pre-tax charges of $29 million (including $9 million of expense for
retirement plan benefits) in
Operating expenses
for employee separation actions in European, Asia
Pacific and Latin America locations. These separations were substantially completed by the end of
2009.
In 2008, we recognized pre-tax charges of $19 million in
Operating expenses
(including $1
million for retirement plan benefits) for employee separation actions primarily in Asia Pacific
locations. These separations were substantially completed by the end of 2009. During 2007, we
recognized pre-tax charges of $3 million of income for separation programs in various International
locations. All of these separation actions have been completed.
FC-45
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 17. RETIREMENT BENEFITS AND SHARE-BASED COMPENSATION
We are a participating employer in certain retirement, postretirement health care and life
insurance and share-based compensation plans that are sponsored by Ford. As described below, Ford
allocates costs to us based on the total number of participating or eligible employees at Ford
Credit. Further information about these sponsored plans is available in Fords Annual Report on
Form 10-K for the year ended December 31, 2009, filed separately with the SEC.
Employee Retirement Plans
Benefits earned under certain Ford-sponsored retirement plans are generally based on an
employees length of service, salary and contributions. The allocation amount can be impacted by
key assumptions (for example, discount rate and average rate of increase in compensation) that Ford
uses in determining its retirement plan obligations. Also, we are jointly and severally liable to
the Pension Benefit Guaranty Corporation (PBGC) for certain Ford IRS-qualified U.S. defined
benefit pension plan liabilities and to any trustee appointed if one or more of these pension plans
were to be terminated by the PBGC in a distress termination. We are liable to pay any plan
deficiencies and could have a lien placed on our assets by the PBGC to collateralize this
liability.
Retirement plan costs allocated to Ford Credit for our employees in the United States
participating in the Ford-sponsored plans was $21 million, $23 million and $90 million in 2009,
2008 and 2007, respectively. The allocated cost for 2009, which was charged to
Operating expenses
,
was equivalent to approximately 11% of Fords total U.S. salaried retirement plan cost.
Postretirement Health Care and Life Insurance Benefits
Postretirement health care benefits are provided under certain Ford plans, which provide
benefits to retired salaried employees primarily in the United States. Our employees generally may
become eligible for these benefits if they retire while working for us; however, benefits and
eligibility rules may be modified from time to time.
Postretirement health care and life insurance costs assigned to Ford Credit for our employees
in the United States participating in the Ford-sponsored plans were $(19) million, $(17) million
and $(17) million in 2009, 2008 and 2007, respectively. The allocated cost for 2009, which was a
reduction to
Operating expenses
, was equivalent to approximately 6% of Fords total U.S. salaried
postretirement health care and life insurance benefits cost.
Stock Options
Certain of our employees have been granted stock options under Fords Long-term Incentive
Plans (LTIP). Costs of these stock option plans are allocated to us based on the total number of
employees at Ford Credit that are eligible for stock options.
Employee stock option expense allocated to Ford Credit for our employees participating in the
Ford-sponsored plans was $2 million, $2 million and $6 million in 2009, 2008 and 2007,
respectively. The allocated expense for 2009, which was charged to
Operating expenses
, was
equivalent to approximately 7% of Fords total stock option expense.
FC-46
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 17. RETIREMENT BENEFITS AND SHARE-BASED COMPENSATION (Continued)
Restricted Stock Units
Certain of our employees have been granted performance and time-based restricted stock units.
Restricted stock units awarded in stock (RSU-stock) provide the recipients with the right to
shares of stock after a restriction period. The fair value of the units granted under the 1998
LTIP is the average of the high and low market price of Fords Common Stock on the grant date. The
fair value of the units granted under the 2008 LTIP is the closing price of Fords Common Stock on
the grant date. Outstanding RSU-stock are either strictly time-based or a combination of
performance and time-based. The restriction periods vary dependent upon the specific grant (1-5
years).
Time-based RSU-stock awards issued in 2006 and prior vest at the end of the restriction period
and the expense is taken equally over the restriction period. For time-based RSU-stock awards
issued in and after 2007, the awards generally vest under the graded vesting method. One-third of
the RSU-stock awards vest after the first anniversary of the grant date, one-third after the second
anniversary, and one-third after the third anniversary. The expense is recognized in accordance
with this graded vesting method.
Performance RSU-stock have a performance period (usually 1-3 years) and a restriction period
(usually 1-3 years). Compensation expense for these awards is not recognized until it is probable
and estimable. Expense is then recognized over the performance and restriction periods based on
the fair market value of Ford stock at grant date.
Employee Restricted Stock Unit expense allocated to Ford Credit for our employees
participating in the plan was $8 million, $6 million and $5 million in 2009, 2008 and 2007,
respectively. The allocated expense for 2009, which was charged to
Operating expenses
, was
equivalent to approximately 7% of Fords total restricted stock unit expense.
FC-47
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 18. TRANSACTIONS WITH AFFILIATED COMPANIES
Transactions with Ford and affiliated companies occur in the ordinary course of business.
Income Statement
The income statement effects for the years ended December 31 of transactions with affiliated
companies were as follows (reductions to
Income/(Loss) before income taxes
are presented as
negative amounts) (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Financing margin
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest supplements and other support costs earned from Ford and affiliated
companies
|
|
$
|
3,725
|
|
|
$
|
4,774
|
|
|
$
|
4,592
|
|
Reimbursement of losses on vehicles repurchased for Ford
|
|
|
255
|
|
|
|
782
|
|
|
|
1,111
|
|
Operating lease revenue earned on vehicles leased to Ford
|
|
|
229
|
|
|
|
267
|
|
|
|
297
|
|
Residual value support earned from Ford and affiliated companies (a)
|
|
|
431
|
|
|
|
395
|
|
|
|
327
|
|
Interest expense on debt with Ford and affiliated companies
|
|
|
(28
|
)
|
|
|
(47
|
)
|
|
|
(21
|
)
|
Interest income earned on notes receivables from Ford and affiliated companies
|
|
|
28
|
|
|
|
38
|
|
|
|
36
|
|
Interest income earned on receivables with affiliates (b)
|
|
|
16
|
|
|
|
15
|
|
|
|
17
|
|
Interest paid under tax sharing agreement with Ford (c)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(71
|
)
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(expense) from derivative transactions with affiliates
|
|
|
(533
|
)
|
|
|
1,730
|
|
|
|
(545
|
)
|
Earned insurance premiums ceded to a Ford-owned affiliate
|
|
|
(127
|
)
|
|
|
(180
|
)
|
|
|
(252
|
)
|
Interest earned under tax sharing agreement with Ford (c)
|
|
|
3
|
|
|
|
10
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments to Ford for marketing support, advice and services (d)
|
|
|
(99
|
)
|
|
|
(185
|
)
|
|
|
(292
|
)
|
Insurance loss and loss adjustment expenses recovered from a Ford-owned affiliate
|
|
|
56
|
|
|
|
77
|
|
|
|
107
|
|
Retirement benefits (e)
|
|
|
2
|
|
|
|
6
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
These amounts are primarily included in
Depreciation on vehicles subject to operating leases
.
|
|
(b)
|
|
Certain entities are reported as consolidated subsidiaries of Ford; revenue from providing financing to these entities is included in
Financing revenue
.
|
|
(c)
|
|
Under our intercompany tax sharing agreement with Ford, we earn interest on net tax assets and pay interest on certain tax liabilities. Interest earned by us under
this agreement is included in
Other income, net
. Interest expenses due to Ford under this agreement are included in
Interest expense
.
|
|
(d)
|
|
We receive technical and administrative advice and services from Ford and its affiliates, occupy office space furnished by Ford and its affiliates, utilize data
processing facilities maintained by Ford, share in the costs of Fords fixed marketing and sell returned lease and repossessed vehicles sold through Ford auction lots.
These costs are charged to
Operating expenses
.
|
|
(e)
|
|
In the United States, we are a participating employer in certain retirement, postretirement health care and life insurance plans that are sponsored by Ford. Ford
allocates costs to us based on the total number of participating or eligible employees at Ford Credit. Refer to Note 17 for additional information.
|
FC-48
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 18. TRANSACTIONS WITH AFFILIATED COMPANIES (Continued)
Balance Sheet
The balance sheet effects at December 31 of transactions with affiliated companies were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Assets
|
|
|
|
|
|
|
|
|
Net finance receivables and investment in operating leases
|
|
|
|
|
|
|
|
|
Receivables purchased from certain divisions and affiliates of Ford (a)
|
|
$
|
3,889
|
|
|
$
|
2,616
|
|
Unearned interest supplements (b)
|
|
|
(1,932
|
)
|
|
|
(1,296
|
)
|
Finance receivables with Ford-owned entities (c)
|
|
|
647
|
|
|
|
1,014
|
|
Net investment in vehicles leased to Ford (d)
|
|
|
461
|
|
|
|
640
|
|
Notes and accounts receivables from Ford and affiliated companies
|
|
|
1,090
|
|
|
|
1,047
|
|
Derivative asset with Ford
|
|
|
0
|
|
|
|
168
|
|
Other assets
|
|
|
|
|
|
|
|
|
Vehicles held for resale that were purchased from Ford and affiliated companies (e)
|
|
|
458
|
|
|
|
603
|
|
Investment in non-consolidated affiliates
|
|
|
123
|
|
|
|
529
|
|
Interest supplements due from Ford related to sold receivables (f)
|
|
|
21
|
|
|
|
65
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payables to Ford and affiliated companies (g) (h)
|
|
|
(1,145
|
)
|
|
|
(1,015
|
)
|
Income tax payable to Ford (h)
|
|
|
(1,352
|
)
|
|
|
(1,657
|
)
|
Debt with Ford and affiliated companies (i)
|
|
|
(564
|
)
|
|
|
(530
|
)
|
Derivative liability with Ford
|
|
|
(29
|
)
|
|
|
|
|
Unearned interest supplements and residual support (b)
|
|
|
(1,074
|
)
|
|
|
(1,271
|
)
|
|
|
|
(a)
|
|
We purchase certain receivables generated by divisions and affiliates of Ford, primarily in connection with the
delivery of vehicle inventories from Ford, the sale of parts and accessories by Ford to dealers, and the purchase of other
receivables generated by Ford. At December 31, 2009, approximately $587 million of these assets are subject to limited
guarantees by Ford. In addition, at December 31, 2009, Ford guaranteed approximately $52 million of our finance
receivables related to dealers.
|
|
(b)
|
|
Unearned interest supplements and residual support payments received for finance receivables and net investments in
operating leases purchased or originated beginning January 1, 2008. At December 31, 2009 in the United States and Canada,
Ford is obligated to pay us $1 billion of interest supplements (including supplements related to sold receivables) and
$180 million of residual value support over the terms of the related finance contracts, compared with $2.5 billion of
interest supplements and about $450 million of residual support at December 31, 2008, 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.
|
|
(c)
|
|
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. These receivables are included in
Finance receivables, net
.
|
|
(d)
|
|
We have entered into a sale-leaseback agreement with Ford primarily for vehicles that Ford leases to employees of Ford
and its subsidiaries. The investment in these vehicles is included in
Net investment in operating leases
and is
guaranteed by Ford.
|
|
(e)
|
|
We purchase from Ford and affiliated companies certain used vehicles pursuant to its obligation to repurchase such
vehicles from daily rental car companies; these vehicles are recorded in
Other assets
. We subsequently sell the used
vehicles at auction; any gain or loss on these vehicles reverts to Ford.
|
|
(f)
|
|
We record an asset for interest supplements when certain receivables are sold in off-balance sheet securitizations and
whole-loan sale transactions. These non-finance receivables are reported in
Other assets
.
|
|
(g)
|
|
Includes $406 million and $440 million of post-retirement health care and life insurance benefits due to Ford at
December 31, 2009 and 2008, respectively.
|
|
(h)
|
|
In accordance with our intercompany tax sharing agreement with Ford, the United States income tax liabilities or
credits are allocated to us generally on a separate return basis calculated as if we were taxable as a corporation. The
income tax payable to Ford does not include amounts recorded as
Deferred income taxes
. Refer to Note 11 for additional
information. During 2009, we paid Ford $1.5 billion related to the agreement.
|
|
(i)
|
|
Includes $389 million and $343 million in support of a guarantee provided by FCE as collateral in respect of the
obligations of Ford Romania at December 31, 2009 and 2008, respectively.
|
FC-49
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 18. TRANSACTIONS WITH AFFILIATED COMPANIES (Continued)
Commitments and Contingencies
We provide various guarantees to third parties on behalf of Ford. At December 31, 2009, the
value of these guarantees totaled approximately $182 million; Ford counter-guarantees approximately
$49 million of these items. In addition, we provided guarantees to Ford on behalf of third parties
totaling $130 million at December 31, 2009. See Note 21 for information regarding guarantees of
certain obligations of unconsolidated and other affiliates.
Support Agreement
On November 6, 2008, we and Ford entered into an Amended and Restated Support Agreement
(Support Agreement) (formerly known as the Amended and Restated Profit Maintenance Agreement).
Pursuant to the Support Agreement, if our managed leverage for a calendar quarter were to be higher
than 11.5 to 1 (as reported in our then-most recent Form 10-Q Report or Form 10-K Report), we can
require Ford to make or cause to be made a capital contribution to us in an amount sufficient to
have caused such managed leverage to be 11.5 to 1. A copy of the Support Agreement is included as
Exhibit 10-A in our Annual Report on Form 10-K for the year ended December 31, 2008.
NOTE 19. SEGMENT AND GEOGRAPHIC 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).
Segment Information
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.
FC-50
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 19. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)
Key operating data for our business segments for the years ended or at December 31 were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated/Eliminations
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
Unallocated
|
|
|
Effect of
|
|
|
Effect of Unearned
|
|
|
|
|
|
|
|
|
|
America
|
|
|
International
|
|
|
Risk
|
|
|
Sales of
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Management
|
|
|
Receivables
|
|
|
Supplements
|
|
|
Total
|
|
|
Total
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (a)
|
|
$
|
10,851
|
|
|
$
|
2,438
|
|
|
$
|
50
|
|
|
$
|
(36
|
)
|
|
$
|
|
|
|
$
|
14
|
|
|
$
|
13,303
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes
(b)
|
|
|
1,905
|
|
|
|
46
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
2,001
|
|
Provision for /(Benefit from) income
taxes
|
|
|
690
|
|
|
|
16
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
724
|
|
Income/(Loss) from continuing
operations
|
|
|
1,215
|
|
|
|
30
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
1,277
|
|
Other disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on vehicles subject to
operating leases
|
|
|
3,659
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,857
|
|
Interest expense
|
|
|
3,632
|
|
|
|
1,544
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
(14
|
)
|
|
|
5,162
|
|
Provision for credit losses
|
|
|
717
|
|
|
|
249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
966
|
|
Finance receivables and net
investment in operating leases
|
|
|
70,903
|
|
|
|
23,636
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
(1,932
|
)
|
|
|
(1,993
|
)
|
|
|
92,546
|
|
Total assets
|
|
|
88,703
|
|
|
|
30,608
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
(1,932
|
)
|
|
|
(1,967
|
)
|
|
|
117,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (a)
|
|
$
|
13,878
|
|
|
$
|
4,051
|
|
|
$
|
(317
|
)
|
|
$
|
(98
|
)
|
|
$
|
|
|
|
$
|
(415
|
)
|
|
$
|
17,514
|
|
Income
Income/(Loss) before income taxes
|
|
|
(2,749
|
)
|
|
|
507
|
|
|
|
(317
|
)
|
|
|
|
|
|
|
|
|
|
|
(317
|
)
|
|
|
(2,559
|
)
|
Provision for/(Benefit from) income
taxes
|
|
|
(1,080
|
)
|
|
|
177
|
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
(1,014
|
)
|
Income/(Loss) from continuing
operations
|
|
|
(1,669
|
)
|
|
|
330
|
|
|
|
(206
|
)
|
|
|
|
|
|
|
|
|
|
|
(206
|
)
|
|
|
(1,545
|
)
|
Other disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on vehicles subject to
operating leases
|
|
|
8,731
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,019
|
|
Interest expense
|
|
|
5,261
|
|
|
|
2,517
|
|
|
|
|
|
|
|
(144
|
)
|
|
|
|
|
|
|
(144
|
)
|
|
|
7,634
|
|
Provision for credit losses
|
|
|
1,603
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,769
|
|
Finance receivables and net
investment in operating leases
|
|
|
87,018
|
|
|
|
30,674
|
|
|
|
|
|
|
|
(559
|
)
|
|
|
(1,296
|
)
|
|
|
(1,855
|
)
|
|
|
115,837
|
|
Total assets
|
|
|
113,728
|
|
|
|
38,162
|
|
|
|
|
|
|
|
(467
|
)
|
|
|
(1,296
|
)
|
|
|
(1,763
|
)
|
|
|
150,127
|
|
|
|
|
(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 $316 million related
to unhedged currency exposure primarily from cross-border intercompany lending.
|
FC-51
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 19. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated/Eliminations
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
Unallocated
|
|
|
Effect of
|
|
|
Effect of
|
|
|
|
|
|
|
|
|
|
America
|
|
|
International
|
|
|
Risk
|
|
|
Sales of
|
|
|
Unearned Interest
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Management
|
|
|
Receivables
|
|
|
Supplements
|
|
|
Total
|
|
|
Total
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (a)
|
|
$
|
15,191
|
|
|
$
|
3,906
|
|
|
$
|
(108
|
)
|
|
$
|
(351
|
)
|
|
$
|
|
|
|
$
|
(459
|
)
|
|
$
|
18,638
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes
|
|
|
701
|
|
|
|
622
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
(108
|
)
|
|
|
1,215
|
|
Provision for /(Benefit from) income
taxes
|
|
|
266
|
|
|
|
218
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
446
|
|
Income/(Loss) from continuing
operations
|
|
|
435
|
|
|
|
404
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
769
|
|
Other disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on vehicles subject to
operating leases
|
|
|
5,884
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,188
|
|
Interest expense
|
|
|
6,728
|
|
|
|
2,304
|
|
|
|
|
|
|
|
(402
|
)
|
|
|
|
|
|
|
(402
|
)
|
|
|
8,630
|
|
Provision for credit losses
|
|
|
516
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
588
|
|
Finance receivables and net
investment in operating leases
|
|
|
106,522
|
|
|
|
40,622
|
|
|
|
|
|
|
|
(6,013
|
)
|
|
|
|
|
|
|
(6,013
|
)
|
|
|
141,131
|
|
Total assets
|
|
|
127,929
|
|
|
|
46,453
|
|
|
|
|
|
|
|
(5,359
|
)
|
|
|
|
|
|
|
(5,359
|
)
|
|
|
169,023
|
|
|
|
|
(a)
|
|
Total Revenue represents
Total financing revenue, Insurance premiums earned, net
and
Other income,
net.
|
FC-52
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 19. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)
Geographic Information
Total revenue,
Income/(Loss) before income taxes
,
Income/(Loss) from continuing operations
,
Finance receivables, net
, and assets identifiable with operations in the United States, Canada,
Europe, and other foreign operations were as follows for the years ended or at December 31 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Revenue (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States operations
|
|
$
|
8,772
|
|
|
$
|
11,132
|
|
|
$
|
12,339
|
|
Canadian operations
|
|
|
2,113
|
|
|
|
2,422
|
|
|
|
2,569
|
|
European operations
|
|
|
2,069
|
|
|
|
3,192
|
|
|
|
2,809
|
|
Other foreign operations
|
|
|
349
|
|
|
|
768
|
|
|
|
921
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
13,303
|
|
|
$
|
17,514
|
|
|
$
|
18,638
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
United States operations
|
|
$
|
1,391
|
|
|
$
|
(2,173
|
)
|
|
$
|
417
|
|
Canadian operations
|
|
|
309
|
|
|
|
(1,136
|
)
|
|
|
(24
|
)
|
European operations
|
|
|
346
|
|
|
|
601
|
|
|
|
555
|
|
Other foreign operations
|
|
|
(45
|
)
|
|
|
149
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
Total income/(loss) before income taxes
|
|
$
|
2,001
|
|
|
$
|
(2,559
|
)
|
|
$
|
1,215
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables, net and net investment in operating leases
|
|
|
|
|
|
|
|
|
|
|
|
|
United States operations
|
|
$
|
59,691
|
|
|
$
|
75,455
|
|
|
$
|
87,157
|
|
Canadian operations
|
|
|
9,652
|
|
|
|
10,167
|
|
|
|
14,383
|
|
European operations
|
|
|
20,397
|
|
|
|
25,612
|
|
|
|
31,674
|
|
Other foreign operations
|
|
|
2,806
|
|
|
|
4,603
|
|
|
|
7,917
|
|
|
|
|
|
|
|
|
|
|
|
Total finance receivables, net and net investment in
operating leases
|
|
$
|
92,546
|
|
|
$
|
115,837
|
|
|
$
|
141,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Total Revenue represents
Total financing revenue, Insurance premiums earned, net
and
Other income, net.
|
FC-53
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 20. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Selected financial data by calendar quarter were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Full
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (a)
|
|
$
|
3,528
|
|
|
$
|
3,619
|
|
|
$
|
3,205
|
|
|
$
|
2,951
|
|
|
$
|
13,303
|
|
Depreciation on vehicles
subject to operating
leases
|
|
|
1,415
|
|
|
|
943
|
|
|
|
842
|
|
|
|
657
|
|
|
|
3,857
|
|
Interest expense
|
|
|
1,420
|
|
|
|
1,290
|
|
|
|
1,259
|
|
|
|
1,193
|
|
|
|
5,162
|
|
Total financing margin and
other revenue
|
|
|
693
|
|
|
|
1,386
|
|
|
|
1,104
|
|
|
|
1,101
|
|
|
|
4,284
|
|
Provision for credit losses
|
|
|
385
|
|
|
|
397
|
|
|
|
111
|
|
|
|
73
|
|
|
|
966
|
|
Income/(Loss) from
continuing operations
|
|
|
(13
|
)
|
|
|
411
|
|
|
|
427
|
|
|
|
452
|
|
|
|
1,277
|
|
Net income/(loss)
|
|
|
(13
|
)
|
|
|
413
|
|
|
|
427
|
|
|
|
452
|
|
|
|
1,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (a)
|
|
$
|
4,551
|
|
|
$
|
4,588
|
|
|
$
|
4,432
|
|
|
$
|
3,943
|
|
|
$
|
17,514
|
|
Depreciation on vehicles
subject to operating
leases
|
|
|
1,814
|
|
|
|
4,090
|
|
|
|
1,573
|
|
|
|
1,542
|
|
|
|
9,019
|
|
Interest expense
|
|
|
1,992
|
|
|
|
1,901
|
|
|
|
1,888
|
|
|
|
1,853
|
|
|
|
7,634
|
|
Total financing margin and
other revenue (b)
|
|
|
745
|
|
|
|
(1,403
|
)
|
|
|
971
|
|
|
|
548
|
|
|
|
861
|
|
Provision for credit losses
|
|
|
327
|
|
|
|
545
|
|
|
|
377
|
|
|
|
520
|
|
|
|
1,769
|
|
Income/(Loss) from
continuing operations
|
|
|
23
|
|
|
|
(1,435
|
)
|
|
|
95
|
|
|
|
(228
|
)
|
|
|
(1,545
|
)
|
Net income/(loss)
|
|
|
24
|
|
|
|
(1,427
|
)
|
|
|
95
|
|
|
|
(228
|
)
|
|
|
(1,536
|
)
|
|
|
|
(a)
|
|
Total Revenue represents
Total financing revenue, Insurance premiums earned, net
and
Other income, net.
|
|
(b)
|
|
In the second quarter of 2008, we recorded a $49 million adjustment to correct the March 31, 2008 valuation of our derivative instruments to
reflect non-performance risk. The impact on previously issued interim financial statements was not material.
|
FC-54
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 21. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies consist primarily of lease commitments, guarantees and
indemnifications, and litigation and claims.
Lease Commitments
At December 31, 2009, we had the following future minimum rental commitments under
non-cancelable operating leases (in millions): 2010 $29; 2011 $20; 2012 $14; 2013 $11;
2014 $6; thereafter $7. These amounts include rental commitments for certain land,
buildings, machinery and equipment. Our rental expense was $36 million, $41 million and $68
million in 2009, 2008 and 2007, respectively.
Guarantees and Indemnifications
The fair values of guarantees and indemnifications issued are recorded in the financial
statements and are not material. We have estimated the probability of payment for each guarantee
and indemnification to be remote and have not recorded any loss accruals. At December 31, 2009 and
2008, 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 $182 million in 2009 and $270 million in
2008, respectively; of these values, $49 million and $110 million for 2009 and 2008, respectively,
was counter-guaranteed by Ford to us.
FCE has also guaranteed obligations of Ford in Romania of which the maximum potential payment
of $389 million has been fully collateralized by cash received from Blue Oval Holdings, a Ford U.K.
subsidiary, which is available for use in FCEs day to day operations, and is recorded as
Debt
.
The expiration dates of the guarantee are August 2010 ($354 million) and September 2010 ($35
million) and could terminate on payment and/or cancellation of the obligation by Ford. A payment
to the guaranteed party would be triggered by failure of Ford to fulfill its obligation covered by
the guarantee.
Guarantees of obligations to Ford
. We have guaranteed $130 million and $96 million of
third-party obligations payable to Ford Brazil at December 31, 2009 and 2008, 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 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
would generally be triggered by a breach of terms of the contract or by a third-party claim. We
are party to numerous indemnifications and many of these indemnities do not limit potential
payment; therefore, we are unable to estimate a maximum amount of potential future payments that
could result from claims made under these indemnities. We regularly evaluate the probability of
having to incur costs associated with these indemnifications and have accrued for expected losses
that are probable.
FC-55
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 21. COMMITMENTS AND CONTINGENCIES (Continued)
Litigation and Claims
Various legal actions, governmental investigations and proceedings and claims are pending or
may be instituted or asserted in the future against us including those relating to state and
federal laws concerning finance and insurance, employment-related matters, personal injury matters,
investor matters, financial reporting matters and other contractual relationships. Certain of the
pending legal actions are, or purport to be, class actions. Some of the foregoing matters involve
or may involve compensatory, punitive, or antitrust or other treble damage claims in very large
amounts, or other relief, which, if granted, would require very large expenditures.
Litigation is subject to many uncertainties, and the outcome of individual litigated matters
is not predictable with assurance. We have established accruals for certain of the matters
discussed in the foregoing paragraph where losses are deemed probable and reasonably estimable. It
is reasonably possible, however, that some of the matters discussed in the foregoing paragraph for
which accruals have not been established could be decided unfavorably to us and could require us to
pay damages or make other expenditures in amounts or a range of amounts that cannot be estimated at
December 31, 2009. We do not reasonably expect, based on our analysis, that such matters would
have a material effect on future financial statements for a particular year, although such an
outcome is possible.
NOTE 22. SUBSEQUENT EVENT
In February 2010, we announced to our employees our plan to continue to reduce our staffing
requirements in our U.S. operations to meet changing business conditions, including the decline in
our receivables. We plan to eliminate about 1,000 staff and agency positions, or about 20% of our
U.S. staff. The reductions will occur in 2010 through attrition, retirements, and involuntary
separations. We estimate the 2010 expense to be approximately $35 million.
FC-56
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