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, 2007
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number 1-6368
Ford Motor Credit Company LLC
(Exact name of registrant as specified in its charter)
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Delaware
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38-1612444
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(State of organization)
One American Road, Dearborn, Michigan
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(I.R.S. employer identification no.)
48126
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(Address of principal executive offices)
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(Zip code)
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Registrants telephone number, including area code (313) 322-3000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each Exchange
on which registered
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6 3/8% Notes due November 5, 2008
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New York Stock Exchange
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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 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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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act).
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Yes
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No
All of the limited liability company interest 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 54
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 contracts and retail 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 contracts and leases 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 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.
Additional financial information regarding our operations by business segments and operations by
geographic regions is shown in Note 16 of our Notes to the Financial Statements.
North America Segment
We do business in all states in the United States and in all provinces in Canada. Our United
States operations accounted for 62% and 65% of our total managed receivables at year-end 2007 and
2006, respectively, and our Canadian operations accounted for about 10% and 8% of our total managed
receivables at year-end 2007 and 2006. Managed receivables include receivables included in
off-balance sheet securitizations and exclude receivables sold in whole-loan sale transactions.
For a discussion of how we review our business performance, including on a managed basis, see the
Overview section in Item 7.
1
Item 1. Business (Continued)
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
Jaguar, Land Rover, Mazda and Volvo brand names to and through Jaguar, Land Rover, Mazda, and Volvo
dealers, respectively.
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 22% and
20% of our total managed receivables at year-end 2007 and 2006, respectively. Within the
International Segment our Europe region accounted for 79% and 76% of our managed receivables at
year-end 2007 and 2006, 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 operates
branches in 15 other European countries. In addition, FCE has operating subsidiaries in the United
Kingdom, Finland, Hungary, Poland and the Czech Republic that provide a variety of wholesale,
leasing and retail vehicle financing. In our largest European markets, Germany and the United
Kingdom, FCE offers most of our products and services under the Ford Credit/Bank, Volvo Car
Finance, Land Rover Financial Services, Jaguar Financial Services and Mazda Credit/Bank brands. 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. 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
outsourcing arrangements exist in several Central and Eastern European markets. In the
Asia-Pacific region, we operate in Australia, Japan, Taiwan, Thailand and China. In the Latin
America region, we operate in Mexico, Puerto Rico, Brazil, Chile 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, 2007 (Fords
2007 10-K Report), filed separately with the SEC and included as an exhibit to this 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. As our funding costs have increased, our reliance on Ford-sponsored
special-rate financing programs offered exclusively through us has grown in importance. For
further discussion regarding interest supplements and other support costs earned from affiliated
companies, see Note 15 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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Leasing companies
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Other automobile manufacturers
affiliated finance companies
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Item 1. Business (Continued)
We compete mainly on the basis of service and financing rates. 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. In addition to Ford-sponsored special-rate financing programs, 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. Higher funding
costs and industry competition have weakened our competitive position. The ability to tailor our
financing services to support Fords marketing plans gives us a competitive advantage in providing
financing to Ford dealers and their customers. In addition, our size allows us to take advantage
of economies of scale in both purchasing and servicing our receivables and leases.
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. However, throughout the automotive financing industry, credit losses before recoveries
are typically higher in the first and fourth quarters of the year.
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 dealers of Ford vehicles. 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 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 60 months in the United States in 2007, compared with 61 months in 2006.
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 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 other Ford
and non-Ford dealers through auctions. Customers who choose our retail balloon product may also
qualify for special-rate financing offers from Ford.
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Item 1. Business (Continued)
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.
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 dealers of other Ford
brands (Jaguar, Land Rover, Mazda, and Volvo). 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 other 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 2007, the average original lease term was 35
months compared with 32 months in 2006.
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 in 2007, the average wholesale receivable
was outstanding for 96 days, excluding the time the vehicle was in transit from the assembly plant
to the dealership. 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 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.
5
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 secured 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 secured
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 and recovering deficiencies for selected accounts.
Payment Extensions
. We occasionally offer payment extensions to customers who have
encountered temporary financial difficulty that limits their ability to pay as contracted. Over
time, about 1-2% of our contracts outstanding are extended, most of them for one month. 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.
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. Repossessed vehicles are sold
at open auctions.
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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 determines the frequency of physical audits of vehicle
inventory. 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
managed within the head office of the local market area and similar risk management principles are
applied.
Insurance
We conduct insurance operations primarily through TARIC and its subsidiaries 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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Extended service plan contracts in the state of Florida and contractual liability
insurance on extended service plan contracts in other states, mainly through Ford dealers
for new and used vehicles;
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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 2007 and
2006.
Employee Relations
Our full-time employees numbered approximately 11,100 and 12,900 at year-end 2007 and 2006,
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 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 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.
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Item 1. Business (Continued)
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 branches in 15 other European 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.
Transactions with Ford and Affiliates
We have a profit maintenance agreement with Ford that requires Ford to maintain our
consolidated income before income taxes and net income at specified minimum levels. In addition,
we have an agreement to maintain a minimum control interest in FCE and to maintain FCEs net worth
above a minimum level. No payments were made under either of these agreements during the 2005
through 2007 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:
8
Item 1. Business (Continued)
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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 15 of our Notes to the Financial Statements, Business Overview, Business Retail
Financing, Business Other Financing and the description of Fords business in Exhibit 99.
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:
Inability to Access Debt or Securitization Markets Around the World at Competitive Rates or in
Sufficient Amounts due to Additional Credit Rating Downgrades, Market Volatility, Market Disruption
or Otherwise
The lower credit ratings assigned to us 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 and other sources of liquidity. Over time, and
particularly in the event of any further credit rating downgrades, market volatility, market
disruption or otherwise, or a significant decline in the demand for the types of securities we
offer, we may need to reduce 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.
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. The level of credit losses we may experience could exceed our expectations.
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.
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 are facing 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.
9
Item 1A. Risk Factors (continued)
Changes in Interest Rates
We are exposed to interest rate risk, and the interest rate to
which we are most exposed is U.S. dollar London Interbank Offered Rate (LIBOR). Our interest
rate risk exposure results principally from re-pricing risk, or differences in the re-pricing
characteristics of assets and liabilities. Any inability to adequately control this exposure could
adversely affect our business.
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.
We Have Significant Exposure to Ford
As of December 31, 2007, Ford is obligated to pay us
approximately $5.4 billion of interest supplements (including supplements related to sold
receivables) and approximately $900
million of residual value support over the terms of the related
finance contracts or operating leases in the United States and Canada. 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. We have agreed with
Ford that in the event Ford fails to pay its interest supplement or residual value support
obligations to us, we may set-off our obligations to Ford against these obligations to us. For a
discussion of the change in Fords payment practice for interest supplements and residual value
support to us, refer to the Outlook section of Item 7 of Part II of our 10-K Report.
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.
10
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, 2007, our total future rental
commitment under leases of real property was $101 million.
We operate in the United States through six regional business centers. Additionally, we do
business in all provinces in Canada through two dealer automotive financing branches and one
regional business center. In 2008, we will continue to consolidate our two remaining Canadian
branches into the Edmonton business center and a satellite origination center in Toronto.
Our North American regional business 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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Henderson, Nevada
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Irving, Texas
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Canada:
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Edmonton, Alberta
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Each of these business centers generally services customers located within its region. All of
our North American business centers are electronically linked and workload can be allocated across
business centers.
We also have three 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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National Bankruptcy Service Center Livonia, 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.
11
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, 2007 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 2007 10-K Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Required.
PART II
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ITEM 5.
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MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
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At December 31, 2007, all of our Shares were owned by Ford Holdings, LLC, a wholly owned
subsidiary of Ford. We did not issue or sell any equity securities during 2007, and there is no
market for our Shares. In 2007, we did not pay regular distributions or dividends. In 2006, we
paid cash dividends of $1.35 billion. Our Shares are pledged as collateral for Fords secured
credit facilities.
ITEM 6. SELECTED FINANCIAL DATA
Not Required.
12
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ITEM 7.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Overview
Generation of Revenue, Income and Cash
Our primary focus is to profitably support the sale of Ford vehicles. 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 securitizations);
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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 and securitized off-balance sheet receivables
and leases that we continue to service; 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 securitizations 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.
13
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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 from 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 further
discussion regarding our segments, see Note 16 of our Notes to the Financial Statements.
Trends and Strategy
Origination: Buy it Right, Price it Right
Our primary focus is to profitably support the
sale of Ford vehicles. Our managed receivables have declined due to our focus on financing Ford
vehicles and lower Ford retail sales. We will continue to work closely with our brand partners to
create value for our dealers and customers by seeking opportunities to go into the marketplace
together, leveraging our unique position as Fords financing company. Our in-market sales teams
provide dealership level account management (finance consulting, insurance and vehicle sales
assistance) by jointly reviewing key dealership sales and operating metrics to identify potential
profit improvement opportunities. The sales teams focus on growing our business and improving
dealership profitability through the use of our wholesale financing, dealer loan, retail financing
and after market products. Risk management remains a key to our continued value and profitability.
We have extensive risk experience and large sample sizes, enabling us to develop proprietary
scoring models which outperform generic scoring models. Our focus remains on providing new tools
and actionable information to dealers and strengthening global risk skills internally. Through
these efforts, we will continue to generate incremental vehicle sales for Ford.
Servicing: Operate Efficiently, Collect Effectively, Enhance Owner Loyalty
Our operations
will continue to drive efficiencies globally by increasing the commonality of our business
processes and information technology platforms. In North America, we further enhanced our
collection modeling capabilities to more effectively manage risk. Our 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. On a global basis, we remain focused on driving cost reductions in proportion to
the overall size of our business while improving customer service and owner loyalty. In 2007, we
consolidated our U.S. branches into our six existing business centers that manage originations,
dealer credit and wholesale operations in addition to the servicing functions. A similar
restructuring in Canada will be completed in 2008. A restructuring in Germany was completed in
2007.
Funding: Fund it Efficiently, Manage Risk
Our funding strategy is to maintain a high level
of liquidity by having a substantial cash balance and committed funding capacity, allowing us to
meet our short-term funding obligations. As a result of lower credit ratings, our unsecured
funding costs have increased over time. While we have continued to access the unsecured debt
market, we have increased our use of securitization funding as it is presently more cost effective
than unsecured funding and allows us access to a broad investor base. We plan to meet a
significant portion of our 2008 funding requirements through securitizations and will continue to
diversify our asset-backed funding by asset class and region. For an additional discussion of our
2008 funding plan, refer to the Funding Term Funding Plan section of Item 7 of Part II of our
10-K Report. 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 financial institutions
in Europe for full service leasing and retail financing). We will continue to pursue and execute
such alternative business arrangements.
14
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Results of Operations
Full Year 2007 Compared with Full Year 2006
In 2007, net income was $775 million, down $508 million from 2006. On a pre-tax basis, we
earned $1,215 million in 2007, down $738 million from 2006.
The decrease in pre-tax earnings primarily reflected:
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A higher provision for credit losses primarily related to the non-recurrence of credit
loss reserve reductions (about $500 million);
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Lower financing margin primarily related to higher borrowing costs (about $400
million);
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Unfavorable lease residual performance reflected in higher depreciation expense for
leased vehicles (about $400 million); and
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Higher other costs primarily due to our North American business transformation
initiative (about $100 million).
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These factors were offset partially by:
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Lower expenses primarily reflecting improved operating costs (about $400 million); and
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Lower net losses related to market valuation adjustments from derivatives (about $300
million).
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In 2007 and 2006, pre-tax earnings included net losses related to market valuation adjustments
from derivatives (unallocated risk management in the table below) of $108 million and $448 million,
respectively.
Results of our operations by business segment for 2007 and 2006 are shown below:
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Full Year
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2007
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Over/(Under)
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2007
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2006
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2006
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(in millions)
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Income before income taxes
|
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|
|
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|
|
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North America Segment
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$
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701
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$
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1,729
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$
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(1,028
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)
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International Segment
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622
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|
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672
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(50
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)
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Unallocated risk management
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(108
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)
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(448
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)
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340
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Income before income taxes.
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1,215
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1,953
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(738
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)
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Provision for income taxes,
minority interests in net
income of subsidiaries and
gain on disposal of
discontinued operations
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(440
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)
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(670
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)
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230
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|
|
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Net income
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$
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775
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$
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1,283
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$
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(508
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)
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The decrease in North America Segment pre-tax earnings primarily reflected higher provision
for credit losses primarily related to the non-recurrence of credit loss reserve reductions,
unfavorable lease residual performance as reflected in higher depreciation expense for leased
vehicles, lower financing margin primarily related to higher borrowing costs and the costs
associated with our business transformation initiative. These factors were offset partially by
lower expenses, primarily reflecting improved operating costs.
The decrease in International Segment pre-tax earnings primarily reflected lower financing
margin primarily reflecting higher borrowing costs, offset partially by a gain related to the sale
of a majority of our interest in AB Volvofinans, which finances the sale of Volvo and Renault
vehicles through Volvo dealers in Sweden, a lower provision for credit losses, favorable currency
exchange rates and lower operating costs.
The change in unallocated risk management income reflected lower net losses related to market
valuation adjustments from derivatives primarily related to movements in interest rates. In the
fourth quarter of 2007, we recorded a $55 million unfavorable cumulative adjustment to correct the
valuation related to certain interest rate swaps. The impact on previously issued annual and
interim financial statements and 2007 full year income was not material. For additional
information on our unallocated risk management segment, see Note 16 of our Notes to the Financial
Statements.
15
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Full Year 2006 Compared with Full Year 2005
In 2006, net income was $1,283 million, down $621 million from 2005. On a pre-tax basis, we
earned $1,953 million in 2006, down $970 million from 2005.
The decrease in pre-tax earnings primarily reflected:
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Higher borrowing costs (about $800 million);
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Higher depreciation expense (about $400 million); and
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The impact of lower average receivable levels in our managed portfolio (about $400
million).
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These were offset partially by:
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Market valuations primarily related to non-designated derivatives (about $500 million);
and
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Reduced operating costs (about $100 million).
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In 2006 and 2005, pre-tax earnings included net losses related to market valuation adjustments
from derivatives (unallocated risk management in the table below) of $448 million and $912 million,
respectively.
Results of our operations by business segment for 2006 and 2005 are shown below:
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|
|
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Full Year
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
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Over/(Under)
|
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|
|
2006
|
|
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2005
|
|
|
2005
|
|
|
|
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(in millions)
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Segment
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|
$
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1,729
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|
|
$
|
2,921
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$
|
(1,192
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)
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International Segment
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|
|
672
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|
|
|
914
|
|
|
|
(242
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)
|
Unallocated risk management
|
|
|
(448
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)
|
|
|
(912
|
)
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes.
|
|
|
1,953
|
|
|
|
2,923
|
|
|
|
(970
|
)
|
Provision for income taxes,
minority interests in net
income of subsidiaries,
income from discontinued
operations and gain on
disposal of discontinued
operations
|
|
|
(670
|
)
|
|
|
(1,019
|
)
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,283
|
|
|
$
|
1,904
|
|
|
$
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
|
The decrease in North America Segment earnings primarily reflected higher borrowing costs,
higher depreciation expense and the impact of lower average receivable levels in our managed
portfolio, offset partially by reduced operating costs.
The decrease in International Segment income primarily reflected higher borrowing costs, the
non-recurrence of a gain on sale of compensation bonds in Argentina, lower credit loss reserve
reductions and the impact of lower average receivable levels in our managed portfolio. The
compensation bonds were issued by the Argentine government in late 2001 and were intended to
compensate entities for government-mandated devaluation of the peso undertaken to provide debt
relief to consumers.
The improvement in unallocated risk management income reflected the change in market
valuations primarily related to non-designated derivatives. In the fourth quarter of 2006, we
recorded a $38 million cumulative adjustment to correct the accounting for certain fair value
interest rate swaps. For additional information on our unallocated risk management segment, see
Note 16 of our Notes to the Financial Statements.
16
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
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
North America Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
1,256
|
|
|
|
1,574
|
|
|
|
1,498
|
|
Canada
|
|
|
186
|
|
|
|
189
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
Total North America Segment
|
|
|
1,442
|
|
|
|
1,763
|
|
|
|
1,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
696
|
|
|
|
711
|
|
|
|
734
|
|
Other international
|
|
|
207
|
|
|
|
233
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
Total International Segment
|
|
|
903
|
|
|
|
944
|
|
|
|
1,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contract placement volume
|
|
|
2,345
|
|
|
|
2,707
|
|
|
|
2,677
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing share Ford, Lincoln and Mercury
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
38
|
%
|
|
|
44
|
%
|
|
|
37
|
%
|
Wholesale
|
|
|
78
|
|
|
|
80
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing share Ford
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
26
|
%
|
|
|
27
|
%
|
|
|
28
|
%
|
Wholesale
|
|
|
96
|
|
|
|
95
|
|
|
|
96
|
|
North America Segment
In 2007, our total contract placement volumes were 1.4 million, down 321,000 contracts from a
year ago. This decrease primarily reflected lower sales of new Ford, Lincoln and Mercury vehicles,
lower used vehicle contract volumes and our lower U.S. Ford, Lincoln and Mercury financing share.
This lower financing share is primarily due to changes in the types of Fords marketing programs
that in 2007 resulted in reduced use of special-rate financing through us.
International Segment
In 2007, our total contract placement volumes were 903,000, down 41,000 contracts from a year
ago. The decrease primarily reflected lower volumes in Latin America and Europe.
17
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Financial Condition
Finance Receivables and Operating Leases
Our receivable levels are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(in billions)
|
|
|
|
|
Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment
|
|
$
|
73.3
|
|
|
$
|
70.4
|
|
|
$
|
65.7
|
|
Wholesale
|
|
|
34.7
|
|
|
|
35.2
|
|
|
|
39.6
|
|
Other
|
|
|
3.4
|
|
|
|
3.8
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
Total finance receivables, net
|
|
|
111.4
|
|
|
|
109.4
|
|
|
|
109.9
|
|
Net investment in operating leases
|
|
|
29.7
|
|
|
|
25.9
|
|
|
|
22.2
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet*
|
|
$
|
141.1
|
|
|
$
|
135.3
|
|
|
$
|
132.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo: Allowance for credit losses included above
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
|
$
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized Off-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment
|
|
$
|
6.0
|
|
|
$
|
12.2
|
|
|
$
|
18.0
|
|
Wholesale
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance receivables
|
|
|
6.0
|
|
|
|
12.2
|
|
|
|
18.0
|
|
Net investment in operating leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitized off-balance sheet
|
|
$
|
6.0
|
|
|
$
|
12.2
|
|
|
$
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment
|
|
$
|
79.3
|
|
|
$
|
82.6
|
|
|
$
|
83.7
|
|
Wholesale
|
|
|
34.7
|
|
|
|
35.2
|
|
|
|
39.6
|
|
Other
|
|
|
3.4
|
|
|
|
3.8
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
Total finance receivables, net
|
|
|
117.4
|
|
|
|
121.6
|
|
|
|
127.9
|
|
Net investment in operating leases
|
|
|
29.7
|
|
|
|
25.9
|
|
|
|
22.2
|
|
|
|
|
|
|
|
|
|
|
|
Total managed
|
|
$
|
147.1
|
|
|
$
|
147.5
|
|
|
$
|
150.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Serviced
|
|
$
|
148.0
|
|
|
$
|
149.5
|
|
|
$
|
153.0
|
|
|
|
|
*
|
|
At December 31, 2007 and 2006, includes finance receivables of
$67.2 billion and $56.5 billion, respectively, that have been sold for
legal purposes in securitizations that do not satisfy the requirements
for accounting sale treatment. In addition, at December 31, 2007 and
2006, includes net investment in operating leases of $18.9 billion and
$15.2 billion, respectively, that have been included in
securitizations that do not satisfy the requirements for accounting
sale treatment. These underlying securitized assets are available
only for payment of the debt or other obligations issued or arising in
the securitization transactions; they are not available to pay our
other obligations or the claims of our other creditors.
|
Managed receivables decreased from year-end 2006, primarily reflecting lower U.S. retail
installment and wholesale receivables, offset partially by changes in currency exchange rates and
higher U.S. net investment in operating leases.
18
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Credit Risk
Credit risk is the possibility of loss from a customers or dealers failure to make payments
according to contract terms. Credit risk has a significant impact on our business. We actively
manage the credit risk of our retail installment and lease and wholesale and dealer loan portfolios
to balance our level of risk and return. The allowance for credit losses reflected on our balance
sheet is our estimate of the probable credit losses inherent in receivables and leases at the date
of our balance sheet. Consistent with our normal practices and policies, we assess the adequacy of
our allowance for credit losses quarterly and regularly evaluate the assumptions and models used in
establishing the allowance.
In purchasing retail finance and lease contracts, we use a proprietary scoring system that
classifies contracts using several factors, such as credit bureau information, FICO score,
employment history, income, amount financed, vehicle value and contract term. As of December 31,
2007, about 4% of the outstanding U.S. retail finance and lease contracts in our serviced portfolio
were classified as high risk, down from about 8% in 2000, consistent with our efforts to improve
the quality of our portfolio.
19
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Credit Loss Metrics
Worldwide
The following table shows worldwide credit losses net of recoveries (charge-offs) for the
various categories of financing during the periods indicated. The loss-to-receivables ratios,
which equal charge-offs on an annualized basis divided by the average amount of receivables
outstanding for the period, are shown below for our on-balance sheet and managed portfolios.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
$
|
608
|
|
|
$
|
465
|
|
|
$
|
681
|
|
Wholesale
|
|
|
17
|
|
|
|
44
|
|
|
|
23
|
|
Other
|
|
|
7
|
|
|
|
14
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet
|
|
$
|
632
|
|
|
$
|
523
|
|
|
$
|
706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reacquired Receivables (retail)*
|
|
$
|
0
|
|
|
$
|
2
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized Off-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
$
|
65
|
|
|
$
|
84
|
|
|
$
|
127
|
|
Wholesale
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitized off-balance sheet
|
|
$
|
65
|
|
|
$
|
84
|
|
|
$
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
$
|
673
|
|
|
$
|
551
|
|
|
$
|
830
|
|
Wholesale
|
|
|
17
|
|
|
|
44
|
|
|
|
23
|
|
Other
|
|
|
7
|
|
|
|
14
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Total managed
|
|
$
|
697
|
|
|
$
|
609
|
|
|
$
|
855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss-to-Receivables Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
0.60
|
%
|
|
|
0.50
|
%
|
|
|
0.72
|
%
|
Wholesale
|
|
|
0.05
|
|
|
|
0.12
|
|
|
|
0.09
|
|
Total including other
|
|
|
0.46
|
%
|
|
|
0.39
|
%
|
|
|
0.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
0.61
|
%
|
|
|
0.51
|
%
|
|
|
0.73
|
%
|
Wholesale
|
|
|
0.05
|
|
|
|
0.12
|
|
|
|
0.06
|
|
Total including other
|
|
|
0.47
|
%
|
|
|
0.41
|
%
|
|
|
0.54
|
%
|
|
|
|
*
|
|
Reacquired receivables reflect the amount of receivables that resulted from the
accounting consolidation of our FCAR Owner Trust retail securitization program (FCAR) in
the second quarter of 2003.
|
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 net resale price of repossessed vehicles and other losses associated with
impaired accounts and unrecoverable vehicles. We also incur credit losses on our wholesale loans,
but default rates for these receivables historically have been substantially lower than those for
retail installment sale and lease contracts.
Charge-offs and loss-to-receivables ratios for our on-balance sheet and managed portfolios
increased from a year ago. These increases, principally in the U.S. retail installment and lease
portfolio, primarily reflected higher loss severity as described in the following section.
20
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 approximately 60% of our
worldwide managed portfolio of retail installment receivables and net investment in operating
leases at December 31, 2007. Trends and causal factors are consistent with the worldwide results,
with repossessions down 8,000 units in 2007 from a year ago, reflecting primarily improved
portfolio quality and fewer accounts outstanding. Severity was higher by $1,100 per unit from a
year ago, consistent with an increase in amount financed for vehicles repossessed in our portfolio,
a higher mix of 72-month contracts and deterioration in used vehicle prices.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
On-Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs (in millions)
|
|
$
|
431
|
|
|
$
|
309
|
|
|
$
|
433
|
|
Loss-to-receivables ratios
|
|
|
0.74
|
%
|
|
|
0.56
|
%
|
|
|
0.79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs (in millions)
|
|
$
|
474
|
|
|
$
|
370
|
|
|
$
|
540
|
|
Loss-to-receivables ratios
|
|
|
0.73
|
%
|
|
|
0.57
|
%
|
|
|
0.79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Metrics Serviced
|
|
|
|
|
|
|
|
|
|
|
|
|
Repossessions (in thousands)
|
|
|
74
|
|
|
|
82
|
|
|
|
109
|
|
Repossession ratios (a)
|
|
|
1.89
|
%
|
|
|
1.94
|
%
|
|
|
2.30
|
%
|
Severity (average loss per repossession)
|
|
$
|
7,400
|
|
|
$
|
6,300
|
|
|
$
|
6,100
|
|
New bankruptcy filings (in thousands)
|
|
|
27
|
|
|
|
21
|
|
|
|
84
|
|
Over-60 day delinquency ratio (b)
|
|
|
0.19
|
%
|
|
|
0.16
|
%
|
|
|
0.15
|
%
|
|
|
|
(a)
|
|
Repossessions as a percent of the average number of accounts outstanding during the periods.
|
|
(b)
|
|
Delinquencies are expressed as a percent of the accounts outstanding for non-bankrupt accounts.
|
Allowance for Credit Losses
Our allowance for credit losses and our allowance for credit losses as a percentage of
end-of-period receivables (net finance receivables and net investment in operating leases) 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(in billions)
|
|
|
|
|
Allowance for Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
$
|
1.0
|
|
|
$
|
1.0
|
|
|
$
|
1.5
|
|
Wholesale
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Other
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
|
$
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percentage of End-of-Period Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail installment and lease
|
|
|
0.99
|
%
|
|
|
1.05
|
%
|
|
|
1.63
|
%
|
Wholesale
|
|
|
0.17
|
|
|
|
0.22
|
|
|
|
0.24
|
|
Total including other
|
|
|
0.77
|
%
|
|
|
0.81
|
%
|
|
|
1.19
|
%
|
Our allowance for credit losses totaled $1.1 billion at December 31, 2007, including $88
million for assumption updates pertaining to loss performance trends. The allowance for credit
losses is primarily a function of portfolio quality, historical loss performance and receivable
levels. Our allowance for credit losses reflects our high quality retail installment and lease
portfolio. Certain of our key credit loss metrics (repossession ratio, over-60 day delinquency
ratio and new bankruptcy filings) are near historically low levels.
21
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. In 2007, we increased depreciation expense for vehicles subject to
operating leases in our North America portfolio, reflecting higher lease volumes, a decrease in
auction values relative to our expectations at the time of contract purchase, and an increase in
the percentage of vehicles returned to us at lease termination. For an additional discussion of
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 about 98% of our total investment in operating leases at
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Placements
|
|
|
484
|
|
|
|
443
|
|
|
|
348
|
|
Terminations
|
|
|
378
|
|
|
|
331
|
|
|
|
425
|
|
Returns
|
|
|
300
|
|
|
|
237
|
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
Return rates
|
|
|
79
|
%
|
|
|
72
|
%
|
|
|
67
|
%
|
In 2007, placement volumes were up 41,000 units compared with 2006, consistent with industry
trends. Termination and return volumes increased 47,000 units and 63,000 units, respectively,
compared with last year, primarily reflecting growth in lease placements since 2004 and higher
return rates, consistent with auction values that were lower than expected at the time of contract
purchase and a general shift in consumer preferences away from trucks and sport utility vehicles.
22
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 2007
vehicle mix for lease terms comprising about 74% of our active Ford, Lincoln and Mercury brand U.S.
operating lease portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Returns
|
|
|
|
|
|
|
|
|
|
|
|
|
24-Month term
|
|
|
85
|
|
|
|
55
|
|
|
|
21
|
|
36-Month term
|
|
|
58
|
|
|
|
57
|
|
|
|
120
|
|
39-Month/Other term
|
|
|
34
|
|
|
|
13
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
Total returns
|
|
|
177
|
|
|
|
125
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
Return rates
|
|
|
83
|
%
|
|
|
74
|
%
|
|
|
63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction Values at Constant
Fourth Quarter 2007 Vehicle Mix
|
|
|
|
|
|
|
|
|
|
|
|
|
24-Month term
|
|
$
|
16,945
|
|
|
$
|
16,375
|
|
|
$
|
17,090
|
|
36-Month term
|
|
|
14,330
|
|
|
|
14,375
|
|
|
|
14,890
|
|
In 2007, Ford, Lincoln and Mercury brand U.S. return volumes were up 52,000 units compared
with 2006, primarily reflecting growth in lease placement volume since 2004 and higher return
rates. Auction values at constant fourth quarter 2007 mix for 24-month lease vehicles were up $570
per unit from 2006 levels, primarily reflecting increased vehicle content on returned vehicles.
Auction values for 36-month lease vehicles were down $45 per unit, reflecting weakness in the used
vehicle market for trucks and sport utility vehicles. Auction value results in 2007 were lower
than our expectations at the time of contract purchase.
23
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 Rating 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. These lower ratings assigned to us over the past several years are primarily a
reflection of those opinions, including concerns regarding Fords automotive cash flow and
profitability, declining market share and product portfolio strength, excess industry capacity and
industry pricing pressure.
The following chart summarizes long-term senior unsecured credit ratings, short-term credit
ratings and the outlook assigned to us since January 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NRSRO RATINGS*
|
|
|
DBRS
|
|
Fitch
|
|
Moodys
|
|
S&P
|
|
|
|
|
Short-
|
|
|
|
Long-
|
|
Short-
|
|
|
|
Long-
|
|
Short-
|
|
|
|
Long-
|
|
Short-
|
|
|
Date
|
|
Long-Term
|
|
Term**
|
|
Trend
|
|
Term
|
|
Term
|
|
Outlook
|
|
Term
|
|
Term
|
|
Outlook
|
|
Term***
|
|
Term
|
|
Outlook
|
Jan. 2005
|
|
BBB (high)
|
|
R-1 (low)
|
|
Stable
|
|
BBB+
|
|
F2
|
|
Stable
|
|
A3
|
|
P-2
|
|
Negative
|
|
BBB-
|
|
A-3
|
|
Stable
|
Apr. 2005
|
|
BBB (high)
|
|
R-2 (high)
|
|
Negative
|
|
BBB+
|
|
F2
|
|
Negative
|
|
A3
|
|
P-2
|
|
Negative
|
|
BBB-
|
|
A-3
|
|
Negative
|
May 2005
|
|
BBB (high)
|
|
R-2 (high)
|
|
Negative
|
|
BBB
|
|
F2
|
|
Negative
|
|
Baa2
|
|
P-2
|
|
Negative
|
|
BB+
|
|
B-1
|
|
Negative
|
July 2005
|
|
BBB (high)
|
|
R-2 (high)
|
|
Negative
|
|
BBB-
|
|
F2
|
|
Negative
|
|
Baa2
|
|
P-2
|
|
Negative
|
|
BB+
|
|
B-1
|
|
Negative
|
Aug. 2005
|
|
BBB
|
|
R-2 (middle)
|
|
Negative
|
|
BBB-
|
|
F2
|
|
Negative
|
|
Baa3
|
|
P-3
|
|
Negative
|
|
BB+
|
|
B-1
|
|
Negative
|
Oct. 2005
|
|
BBB (low)
|
|
R-2 (low)
|
|
Negative
|
|
BBB-
|
|
F2
|
|
Negative
|
|
Baa3
|
|
P-3
|
|
Negative
|
|
BB+
|
|
B-1
|
|
Negative
|
Dec. 2005
|
|
BBB (low)
|
|
R-2 (low)
|
|
Negative
|
|
BB+
|
|
B
|
|
Negative
|
|
Baa3
|
|
P-3
|
|
Negative
|
|
BB+
|
|
B-1
|
|
Negative
|
Jan. 2006
|
|
BB
|
|
R-4
|
|
Negative
|
|
BB+
|
|
B
|
|
Negative
|
|
Ba2
|
|
NP
|
|
Negative
|
|
BB-
|
|
B-2
|
|
Negative
|
Mar. 2006
|
|
BB
|
|
R-4
|
|
Negative
|
|
BB
|
|
B
|
|
Negative
|
|
Ba2
|
|
NP
|
|
Negative
|
|
BB-
|
|
B-2
|
|
Negative
|
June 2006
|
|
BB
|
|
R-4
|
|
Negative
|
|
BB
|
|
B
|
|
Negative
|
|
Ba2
|
|
NP
|
|
Negative
|
|
B+
|
|
B-2
|
|
Negative
|
July 2006
|
|
BB (low)
|
|
R-4
|
|
Negative
|
|
BB
|
|
B
|
|
Negative
|
|
Ba3
|
|
NP
|
|
Negative
|
|
B+
|
|
B-2
|
|
Negative
|
Aug. 2006
|
|
BB (low)
|
|
R-4
|
|
Negative
|
|
BB-
|
|
B
|
|
Negative
|
|
Ba3
|
|
NP
|
|
Negative
|
|
B+
|
|
B-2
|
|
Negative
|
Sep. 2006
|
|
B (high)
|
|
R-4
|
|
Negative
|
|
BB-
|
|
B
|
|
Negative
|
|
B1
|
|
NP
|
|
Negative
|
|
B
|
|
B-3
|
|
Negative
|
Nov. 2006
|
|
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
|
|
|
|
*
|
|
The SEC recognized Rating and Investment Information, Inc. (R&I) and Japan Credit Rating
Agency, Ltd. (JCR) as NRSROs in May 2007 and September 2007, respectively. Both agencies
assign long-term issue ratings to our February 2005 ¥160 billion 1.71% issuance which matures
in February 2008. R&I assigns a rating of BB- with a negative outlook and JCR assigns a
rating of B+ with a negative outlook.
|
|
**
|
|
In September 2006, DBRS revised certain rating categories used to rate commercial paper and
other short-term debt instruments. This included changing the rating category of R-3 (high),
the rating assigned to us as of January 2006, to R-4. The rating revision is related to the
redefinition of the rating categories and does not reflect a change in the DBRS opinion
regarding the credit quality of these debts.
|
|
***
|
|
In July 2006, S&P assigned FCE a long-term rating of BB-, a one notch positive differential
versus Ford Credit. This differential remains, with FCEs present long-term rating at B+.
|
24
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Funding
Funding Strategy
Our funding strategy is to maintain a high level of liquidity by having a substantial cash
balance and committed funding capacity, allowing us to meet our short-term funding obligations. As
a result of lower credit ratings over the past few years, our unsecured funding costs have
increased over time. While we continue to access the unsecured debt market when it makes sense to
do so, we have increased our use of securitization funding as it is presently more cost effective
than unsecured funding and allows us access to a broad investor base. We plan to meet a
significant portion of our 2008 funding requirements through securitizations, and to continue to
diversify our asset-backed funding by asset class and region. In addition, we have various
alternative business arrangements for select products and markets that reduce our funding
requirements while allowing us to support Ford (e.g., our partnering in Brazil for retail financing
and FCEs partnering with various financial institutions in Europe for full service leasing and
retail financing). We are continuing to pursue and execute such alternative business arrangements.
Consistent with the overall market, we were impacted by volatility in the asset-backed
securities markets during the second half of 2007. Since August 2007, we have experienced higher
credit spreads and, in certain circumstances, shorter maturities in our public and private
securitization issuances. Given present market conditions, we expect that our credit spreads and
the cost of renewing our committed liquidity programs will increase in 2008.
If there were reductions in the market capacity for the types of asset-backed securities used
in our asset-backed funding, there could be increased risk to our funding plan. As a result, we
may need to reduce the amount of receivables and operating leases we purchase or originate. A
significant reduction in our managed receivables would reduce our ongoing profits, and could
adversely affect our ability to support the sale of Ford vehicles.
Funding Sources
Our funding sources include primarily securitizations 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 a more complete discussion of securitizations, refer to the Securitizations
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, 2007, 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 $5.4 billion. At December 31, 2007, the principal amount
outstanding of our unsecured commercial paper was about $500 million. 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.
We do not hold reserves specifically to fund the payment of any of our 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 short-term funding obligations.
25
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Cost of Funding Sources
The cost of securitizations 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 LIBOR or other comparable benchmark rates. Our unsecured commercial paper
funding costs are based on spreads to LIBOR. Our floating rate demand notes funding costs are
changed depending on market conditions.
In addition to enhancing our liquidity, one of the main reasons that we have increased our use
of securitizations as a funding source over the last few years has been that spreads on our
securitizations 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 securities markets during 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
2007, our spreads on the fixed rate notes offered in our U.S. public retail securitizations ranged
between six and eleven basis points during the first half of the year and between 37 and 43 basis
points during the second half of the year over the relevant benchmark rates, while our U.S.
unsecured long-term debt funding spreads as measured by the five-year credit default swap market
have fluctuated between 219 and 750 basis points over LIBOR. In January 2008, we completed a U.S.
public retail securitization with spreads on the fixed rate notes between 80 and 110 basis points
over the relevant benchmark rates.
26
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Funding Portfolio
Our outstanding debt and securitized off-balance sheet funding was as follows on the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(in billions)
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed commercial paper *
|
|
$
|
13.5
|
|
|
$
|
16.5
|
|
|
$
|
21.8
|
|
Other asset-backed short term debt *
|
|
|
6.2
|
|
|
|
1.2
|
|
|
|
|
|
Ford Interest Advantage
|
|
|
5.4
|
|
|
|
5.6
|
|
|
|
6.7
|
|
Unsecured commercial paper
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
1.0
|
|
Other short-term debt
|
|
|
1.5
|
|
|
|
2.1
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt
|
|
|
27.1
|
|
|
|
25.8
|
|
|
|
31.8
|
|
Unsecured long-term debt (including notes
payable within one year)
|
|
|
62.8
|
|
|
|
72.0
|
|
|
|
83.6
|
|
Asset-backed long-term debt (including notes
payable within one year) *
|
|
|
49.5
|
|
|
|
41.9
|
|
|
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
139.4
|
|
|
|
139.7
|
|
|
|
133.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized Off-Balance Sheet Funding
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized off-balance sheet portfolio
|
|
|
6.0
|
|
|
|
12.2
|
|
|
|
18.0
|
|
Retained interest
|
|
|
(0.7
|
)
|
|
|
(1.0
|
)
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
Total securitized off-balance sheet funding
|
|
|
5.3
|
|
|
|
11.2
|
|
|
|
16.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt plus securitized off-balance
sheet funding
|
|
$
|
144.7
|
|
|
$
|
150.9
|
|
|
$
|
150.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit lines to total unsecured commercial paper.
|
|
|
>100
|
%
|
|
|
>100
|
%
|
|
|
>100
|
%
|
Securitized funding to managed receivables
|
|
|
51
|
|
|
|
48
|
|
|
|
38
|
|
Short-term debt and notes payable within one year
to total debt
|
|
|
43
|
|
|
|
43
|
|
|
|
43
|
|
Short-term debt and notes payable within one year
to total capitalization
|
|
|
39
|
|
|
|
40
|
|
|
|
40
|
|
|
|
|
*
|
|
Obligations issued in securitizations that are payable only out of collections on the underlying
securitized assets and related enhancements.
|
At December 31, 2007, unsecured long-term debt (including notes payable within one year) was
down about $9 billion from year-end 2006, primarily reflecting about $18 billion of debt maturities
offset partially by about $7 billion of unsecured long term debt issuance and about $2 billion
increase in the debt balance due to changes in currency exchange rates. Asset-backed long-term
debt (including notes payable within one year) was up about $8 billion from year-end 2006,
reflecting asset-backed long-term debt issuance in excess of amortization of asset-backed debt.
Securitized off-balance sheet funding was down about $6 billion from year-end 2006, primarily
reflecting the amortization of previous securitizations.
27
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 2006 and 2007 and
our planned issuances for 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Forecast
|
|
|
2007
|
|
|
2006
|
|
|
|
(in billions)
|
|
Public Term Funding
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
$
|
0 2
|
|
|
$
|
6
|
|
|
$
|
9
|
|
Securitizations (a)
|
|
|
8 14
|
|
|
|
6
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
Total public term funding
|
|
$
|
8 16
|
|
|
$
|
12
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Term Funding
(b)
|
|
$
|
10 20
|
|
|
$
|
28
|
|
|
$
|
29
|
|
|
|
|
(a)
|
|
Reflects new issuance; excludes whole-loan sales and other structured financings.
|
|
(b)
|
|
Includes private term debt, securitizations, other structured financings and whole-loan sales; excludes
sales to Ford Credits on-balance sheet asset-backed commercial paper programs.
|
In 2007, we completed about $12 billion of public term funding transactions including about
$6 billion of unsecured long-term debt, about $5 billion of retail asset-backed securitizations in
the U.S., and about $1 billion in a retail asset-backed securitization in Germany. We expect our
full year 2008 public term funding requirements to be between $8 billion and $16 billion. In
January 2008, we completed a U.S. public retail asset-backed securitization of about $2 billion.
In 2007, we completed about $28 billion of private term funding transactions (excluding our
on-balance sheet asset-backed commercial paper programs and proceeds from revolving transactions)
in several markets. These private transactions included lease, retail and wholesale asset-backed
securitizations and unsecured term debt.
Our funding plan is subject to risks and uncertainties, many of which are beyond our control.
If credit markets continue to constrain term securitization funding, we will consider reducing our
assets below the low-end of our projected managed receivables balance (i.e., below $130 billion).
Refer to the Outlook section of Item 7 of Part II of our 10-K Report.
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 asset backed commercial paper program and credit facilities), less
asset-backed capacity in excess of eligible receivables and cash required to support on-balance
sheet securitizations. We maintain multiple sources of liquidity, including committed asset-backed
funding capacity beyond our present needs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in billions)
|
|
Cash, cash equivalents and marketable securities (a)
|
|
$
|
16.7
|
|
|
$
|
21.8
|
|
|
$
|
17.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Committed liquidity programs
|
|
$
|
36.8
|
|
|
$
|
35.1
|
(b)
|
|
$
|
17.9
|
|
Asset-backed commercial paper (FCAR)
|
|
|
16.9
|
|
|
|
18.6
|
|
|
|
18.2
|
|
Asset-backed commercial paper (Motown Notes
SM
)
|
|
|
|
|
|
|
6.0
|
|
|
|
10.0
|
|
Credit facilities
|
|
|
3.0
|
|
|
|
3.8
|
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
Capacity
|
|
$
|
56.7
|
|
|
$
|
63.5
|
|
|
$
|
52.3
|
|
|
|
|
|
|
|
|
|
|
|
Capacity and cash
|
|
$
|
73.4
|
|
|
$
|
85.3
|
(b)
|
|
$
|
70.2
|
|
Less: Capacity in excess of eligible receivables
|
|
|
(4.7
|
)
|
|
|
(15.2
|
)
|
|
|
(0.4
|
)
|
Less: Cash to support on-balance sheet securitizations
|
|
|
(4.7
|
)
|
|
|
(3.7
|
)
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
Liquidity
|
|
$
|
64.0
|
|
|
$
|
66.4
|
(b)
|
|
$
|
67.5
|
|
Less: Utilization
|
|
|
(36.1
|
)
|
|
|
(30.7
|
)
|
|
|
(30.9
|
)
|
|
|
|
|
|
|
|
|
|
|
Liquidity available for use
|
|
$
|
27.9
|
|
|
$
|
35.7
|
(b)
|
|
$
|
36.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Excludes marketable securities related to insurance activities.
|
|
(b)
|
|
As of January 1, 2007.
|
At December 31, 2007, the capacity of our liquidity sources and cash totaled $73.4 billion, of
which $64.0 billion could be utilized (based on the availability of eligible assets and the level
of cash required to support
on-balance sheet securitizations). As of December 31, 2007, $36.1 billion was utilized,
leaving $27.9 billion (including $12.0 billion of cash, cash equivalents and marketable securities,
excluding marketable securities related to insurance activities) available for use. These amounts
exclude our Motown Notes program, as there is presently a lack of investor demand for extendible
commercial paper.
28
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Cash, Cash Equivalents and Marketable Securities.
At December 31, 2007, our cash, cash
equivalents and marketable securities (excluding marketable securities related to insurance
activities) totaled $16.7 billion, compared with $21.8 billion at year-end 2006. We ended 2006
with a high level of cash as a result of favorable funding opportunities in the fourth quarter of
2006 which pre-funded some of our 2007 first quarter maturities. In the normal course of our
funding activities, we may generate more proceeds than are necessary 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 short-term U.S. Treasury bills, federal agency
securities, A-1/P-1 (or higher) rated commercial paper, and bank time deposits with investment
grade institutions. The average maturity of these investments is typically less than 90 days and
is adjusted based on market conditions and liquidity needs. We monitor our cash levels and average
maturity on a daily basis. Cash balances include amounts to be used only to support our on-balance
sheet securitizations of $4.7 billion at December 31, 2007 and $3.7 billion at December 31, 2006.
Committed Liquidity Programs.
We and our subsidiaries, including FCE, have entered into
agreements with a number of bank-sponsored asset-backed commercial paper conduits (conduits) and
other financial institutions whereby such parties are contractually committed, at our option, to
purchase from us eligible retail or wholesale assets or to purchase or make advances under
asset-backed securities backed by retail or wholesale assets for proceeds of up to $30.8 billion at
December 31, 2007 ($17.1 billion retail and $13.7 billion wholesale) of which $10.0 billion are
commitments to FCE. As a result of the continued asset-backed securities market volatility that
began in August 2007, there is a risk to the renewal of some of these committed liquidity programs,
which could lead to a reduction in the size of these programs and/or higher costs. 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in billions)
|
|
Credit Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford Credit bank lines
|
|
$
|
0.5
|
|
|
$
|
1.1
|
|
|
$
|
3.8
|
|
FCE bank lines
|
|
|
2.5
|
|
|
|
2.7
|
|
|
|
2.4
|
|
Utilized amounts
|
|
|
(0.9
|
)
|
|
|
(1.2
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
Available credit facilities
|
|
$
|
2.1
|
|
|
$
|
2.6
|
|
|
$
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Commercial Paper Lines
|
|
|
|
|
|
|
|
|
|
|
|
|
FCAR asset-backed commercial paper lines
|
|
$
|
16.9
|
|
|
$
|
18.6
|
|
|
$
|
18.2
|
|
Motown Notes
SM
asset-backed commercial paper lines
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-backed commercial paper lines
|
|
$
|
17.2
|
|
|
$
|
18.9
|
|
|
$
|
18.7
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, we and our subsidiaries, including FCE, had $3.0 billion of
contractually committed unsecured credit facilities with financial institutions, of which $2.1
billion were available for use. In addition, at December 31, 2007, banks provided $17.2 billion of
contractually committed liquidity facilities to support our two on-balance sheet asset-backed
commercial paper programs; $16.9 billion supported our FCAR program and $300 million supported our
Motown Notes
SM
wholesale securitization program (Motown Notes). For additional
information on our credit facilities, see Note 10 of our Notes to the Financial Statements.
29
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 contractual maturities of our
finance receivables, investment in operating leases and cash less the cumulative contractual debt
maturities over upcoming annual periods. The following table shows our balance sheet liquidity
profile for the periods presented as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Contractual Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 and
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Beyond
|
|
|
|
(in billions)
|
|
Finance
receivables (a),
investment in
operating leases
(b) and cash (c)
|
|
$
|
92.2
|
|
|
$
|
123.1
|
|
|
$
|
143.8
|
|
|
$
|
158.9
|
|
Debt
|
|
|
(59.8
|
)
|
|
|
(88.1
|
)
|
|
|
(104.0
|
)
|
|
|
(139.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
receivables,
investment in
operating
leases and cash
over/(under)
debt
|
|
$
|
32.4
|
|
|
$
|
35.0
|
|
|
$
|
39.8
|
|
|
$
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Finance receivables net of unearned income.
|
|
(b)
|
|
Investment in operating leases net of accumulated depreciation.
|
|
(c)
|
|
Includes cash, cash equivalents and marketable securities (excludes marketable securities
related to insurance activities).
|
Our balance sheet is inherently liquid because of the short-term nature of our finance
receivables, investment in operating leases and cash. Contractual maturities of investment in
operating leases consist primarily of depreciation over the remaining life of the lease and the
expected residual value at lease termination. For additional information on contractual maturities
of finance receivables and debt, see Notes 4 and 10 of our Notes to the Financial Statements.
Liquidity Risks
Despite our diverse sources of liquidity, our ability to maintain this liquidity may be
affected by the following factors:
|
|
|
Disruption of financial markets;
|
|
|
|
|
Continuation of the credit market volatility that began in August 2007;
|
|
|
|
|
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;
|
|
|
|
|
Accounting and regulatory changes;
|
|
|
|
|
Our ability to maintain credit facilities; and
|
|
|
|
|
Credit ratings assigned to us.
|
30
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Securitizations
Overview
We securitize finance receivables and net investment in operating leases through a variety of
programs, utilizing amortizing, variable funding and revolving structures. Our securitization
programs are targeted to many different investors in both public and private transactions in
capital markets worldwide. We completed our first securitization in 1988, and regularly securitize
assets, purchased or originated, in the United States, Canada, Europe (including the United
Kingdom, Germany, Spain, Italy and France), and have securitized assets in Japan, Australia and
Mexico.
Most of our securitizations do not satisfy the requirements for accounting sale treatment, and
the securitized assets and associated debt remain on our balance sheet. Some of our
securitizations, however, do satisfy accounting sale treatment and are not reflected on our balance
sheet in the same way as debt funding. Both on- and off-balance sheet securitizations 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 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. As a result of market volatility since August 2007, our ability to access
non-committed sources has become less predictable and is more dependent on market conditions. This
may impact the timing, amount, cost and type of securitizations we are able to complete.
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 the 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 securitizations 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
securitizations 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. Specific assets are usually not identified until
the month in which the securitization occurs.
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, liquidity
facilities and certain cash deposits. We have no direct exposure to monoline insurance companies
(insurance companies that operate in a single industry and guarantee the timely repayment of bond
principal and interest when an issuer defaults).
31
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
securitizations because our retained interests include the most subordinated interests in the
securitized assets, which are the first to absorb credit losses on the securitized assets. Based
on past experience, we expect that any credit 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
securitizations, which are customary in the securitization industry. These obligations consist of
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 interest shortfalls or other amounts. See Note 7 of our
Notes to the Financial Statements for more information about our off-balance sheet repurchases.
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 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 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 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).
|
|
|
|
|
Revolving and Variable Funding Note Structures in Europe
If FCE fails to add the
required amount of additional assets, or if cash reserves fall below certain levels, FCE
will be unable to obtain additional funding through its revolving/variable funding note
securitization programs and any existing funding would begin to amortize.
|
In the past, these features have not limited our ability to use securitization to fund our
operations.
32
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
In addition to the structural features discussed above, our securitization programs may be
affected by the following factors:
|
|
|
Market
Market disruption and volatility could impact investors acceptance of
asset-backed securities.
|
|
|
|
|
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 liquidity facilities
Our ability to maintain 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 securitizations
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.
|
If, as a result of any of these or other factors, the cost of securitization funding were to
increase significantly or funding through securitizations were no longer available to us, it would
have a material adverse impact on our financial condition, results of operations or liquidity.
33
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
On-Balance Sheet Arrangements
Most of our securitization programs do not satisfy the requirements for accounting sale
treatment and, therefore, the securitized assets and associated debt are included in our financial
statements. We expect our future securitizations 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 assets are not available to pay our other obligations or the claims of our
other creditors. This debt is not our legal obligation or the legal obligation of our other
subsidiaries.
At December 31, 2007 and 2006, the total outstanding principal amount of finance receivables
and net investment in operating leases included in on-balance sheet securitizations was $86.1
billion and $71.7 billion, respectively. The cash balances to be used only to support the
on-balance sheet securitizations at December 31, 2007 and 2006, were approximately $4.7 billion and
$3.7 billion, respectively. Debt issued that is payable only out of collections on the underlying
securitized assets and related enhancements totaled $69.2 billion and $59.6 billion at December 31,
2007 and 2006, respectively.
Off-Balance Sheet Arrangements
The remainder of our securitization programs satisfy the requirements for accounting sale
treatment and, therefore, the securitized assets and associated debt are removed from our financial
statements.
Off-Balance Sheet Securitization Activity
The following table illustrates our worldwide activity in off-balance sheet securitizations
and whole-loan sale transactions for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
Public retail
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9.7
|
|
Retail conduit
|
|
|
0.7
|
|
|
|
2.1
|
|
|
|
3.8
|
|
Motown Notes program
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
Public wholesale
|
|
|
|
|
|
|
|
|
|
|
2.3
|
|
Canada and other
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total North America Segment
|
|
|
0.7
|
|
|
|
2.6
|
|
|
|
17.2
|
|
International Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
Public retail
|
|
|
|
|
|
|
0.1
|
|
|
|
0.8
|
|
Retail conduit
|
|
|
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe
|
|
|
|
|
|
|
0.2
|
|
|
|
1.3
|
|
Asia-Pacific
|
|
|
|
|
|
|
0.3
|
|
|
|
0.4
|
|
Latin America
|
|
|
|
|
|
|
1.0
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
Total International Segment
|
|
|
|
|
|
|
1.5
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds
|
|
|
0.7
|
|
|
|
4.1
|
|
|
|
19.4
|
|
Whole-loan sales
|
|
|
|
|
|
|
1.0
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
Total net proceeds
|
|
$
|
0.7
|
|
|
$
|
5.1
|
|
|
$
|
20.9
|
|
|
|
|
|
|
|
|
|
|
|
In 2007, total net proceeds from off-balance sheet securitizations and whole-loan sale
transactions were about $700 million, down $4.4 billion compared with a year ago. The decrease in
net proceeds reflected lower utilization of off-balance sheet securitizations and whole-loan sales
transactions.
34
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
The Effect of Off-Balance Sheet Receivables Sales Activity on Financial Reporting
We report the following items in
Investment and other income related to sales of receivables
on our income statement:
|
|
|
Income on residual interest;
|
|
|
|
|
Servicing fee income from sold receivables that we continue to service;
|
|
|
|
|
Interest income on retained interests;
|
|
|
|
|
Net gain on sales of finance receivables; and
|
|
|
|
|
Other income related to sales of receivables.
|
The following table summarizes activity related to off-balance sheet sales of receivables
reported in
Investment and other income related to sales of receivables
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income on residual interest
|
|
$
|
157
|
|
|
$
|
137
|
|
|
$
|
468
|
|
Servicing fees
|
|
|
122
|
|
|
|
198
|
|
|
|
376
|
|
Interest income on retained interests
|
|
|
34
|
|
|
|
32
|
|
|
|
327
|
|
Net gain on sales of receivables
|
|
|
5
|
|
|
|
88
|
|
|
|
87
|
|
Other
|
|
|
73
|
|
|
|
213
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income related to sales of
receivables
|
|
|
391
|
|
|
|
668
|
|
|
|
1,513
|
|
Less: Whole-loan income
|
|
|
(39
|
)
|
|
|
(49
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
Income related to off-balance sheet securitizations
|
|
$
|
352
|
|
|
$
|
619
|
|
|
$
|
1,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables sold (in billions)
|
|
$
|
0.8
|
|
|
$
|
5.5
|
|
|
$
|
18.1
|
|
Servicing portfolio as of period-end (in billions)
|
|
|
6.9
|
|
|
|
14.2
|
|
|
|
20.9
|
|
Pre-tax gain per dollar of retail receivables sold
|
|
|
0.6
|
%
|
|
|
1.6
|
%
|
|
|
0.5
|
%
|
In 2007, income related to off-balance sheet securitizations declined $267 million compared
with 2006. The decline primarily reflected amortization of the off-balance sheet securitization
portfolio.
Sales of finance receivables through off-balance sheet securitizations have the impact on
earnings of recalendarizing and reclassifying net financing margin (financing revenue less interest
expense) and credit losses related to the sold receivables, compared with how they would have been
reported if we continued to report the sold receivables on our balance sheet and funded them
through asset-backed financings. Recalendarization effects occur initially when the gain or loss
on the sale of the receivables is recognized in the period the receivables are sold. Over the life
of the securitization transactions, we recognize income from residual interest in securitization
transactions, interest income from retained securities, servicing fees and other receivable sale
income.
Credit losses related to the off-balance sheet securitized receivables are included in our
initial and ongoing valuation of our residual interest in securitization transactions (see
Critical Accounting Estimates Off-Balance Sheet Sales of Receivables in Securitizations and
Other Transactions section of Item 7 of Part II of our 10-K Report for definition) and neither
impact the
Provision for credit losses
on our income statement nor influence our assessment of the
adequacy of our allowance for credit losses related to our on-balance sheet receivables.
Over the life of each off-balance sheet securitization transaction, the gain or loss on the
sale of the receivables, income from residual interest in securitization transactions, interest
income from retained securities, servicing fees and other receivable sale income is equal to the
net financing margin and credit losses that would have been reported had we reported the
receivables on our balance sheet and funded them through asset-backed financings.
The net impact of off-balance sheet securitizations on our earnings in a given period will
vary depending on the amount and type of receivables sold and the timing of the transactions in the
current period and the preceding two-to-three-year period, as well as the interest rate environment
at the time the finance receivables were originated and securitized.
35
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
The following table shows, on an analytical basis, the earnings impact of our off-balance
sheet securitizations as if we had reported them on-balance sheet and funded them through
on-balance sheet asset-backed financings for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in millions)
|
|
Financing revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail revenue
|
|
$
|
703
|
|
|
$
|
1,128
|
|
|
$
|
1,498
|
|
Wholesale revenue
|
|
|
|
|
|
|
|
|
|
|
1,006
|
|
|
|
|
|
|
|
|
|
|
|
Total financing revenue
|
|
|
703
|
|
|
|
1,128
|
|
|
|
2,504
|
|
Borrowing cost
|
|
|
(402
|
)
|
|
|
(603
|
)
|
|
|
(1,076
|
)
|
|
|
|
|
|
|
|
|
|
|
Net financing margin
|
|
|
301
|
|
|
|
525
|
|
|
|
1,428
|
|
Net credit losses
|
|
|
(65
|
)
|
|
|
(84
|
)
|
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
236
|
|
|
$
|
441
|
|
|
$
|
1,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income related to off-balance sheet securitizations
|
|
$
|
352
|
|
|
$
|
619
|
|
|
$
|
1,440
|
|
Recalendarization impact of off-balance sheet
securitizations
|
|
|
116
|
|
|
|
178
|
|
|
|
139
|
|
In 2007, the impact on earnings of reporting the sold receivables as off-balance sheet
securitizations was $116 million higher than had these transactions been structured as on-balance
sheet securitizations. This difference resulted from recalendarization effects caused by
gain-on-sale accounting requirements. This effect will fluctuate as the amount of receivables sold
in our off-balance sheet securitizations decreases over time.
36
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
establishing pricing for retail, wholesale and lease financing, and assessing our capital
structure. We refer to our shareholders interest and our historical stockholders equity as
equity. We calculate leverage on a financial statement basis and on a managed basis using the
following formulas:
|
|
|
|
|
|
|
Financial
|
|
|
|
Total Debt
|
|
|
|
|
|
|
|
|
|
Statement
|
|
=
|
|
Equity
|
|
|
Leverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest in
|
|
|
|
|
|
|
|
Adjustments for
|
|
|
|
|
|
|
|
|
Securitized
|
|
|
|
Securitized
|
|
|
|
Cash,
|
|
|
|
Hedge
|
|
|
|
|
|
|
|
|
Off-balance
|
|
|
|
Off-balance
|
|
|
|
Cash Equivalents,
|
|
|
|
Accounting
|
|
|
|
|
Total Debt
|
|
+
|
|
Sheet
|
|
|
|
Sheet
|
|
|
|
and Marketable
|
|
|
|
on Total Debt (b)
|
Managed Leverage
|
|
=
|
|
|
|
|
|
Receivables
|
|
|
|
Receivables
|
|
|
|
Securities (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
+
|
|
Minority
|
|
|
|
Hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
Accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on Equity (b)
|
|
|
|
|
|
|
|
(a)
|
|
Excludes marketable securities related to insurance activities.
|
|
(b)
|
|
Primarily related to market valuation adjustments from derivatives due to movements
in interest rates.
|
The following table shows the calculation of our financial statement leverage (in billions,
except for ratios):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
139.4
|
|
|
$
|
139.7
|
|
|
$
|
133.4
|
|
Total equity
|
|
|
13.4
|
|
|
|
11.8
|
|
|
|
11.4
|
|
Financial statement leverage (to 1)
|
|
|
10.4
|
|
|
|
11.9
|
|
|
|
11.7
|
|
The following table shows the calculation of our managed leverage (in billions, except for
ratios):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
139.4
|
|
|
$
|
139.7
|
|
|
$
|
133.4
|
|
Securitized off-balance sheet receivables outstanding
|
|
|
6.0
|
|
|
|
12.2
|
|
|
|
18.0
|
|
Retained interest in securitized off-balance sheet receivables
|
|
|
(0.7
|
)
|
|
|
(1.0
|
)
|
|
|
(1.4
|
)
|
Adjustments for cash, cash equivalents and marketable
securities (a)
|
|
|
(16.7
|
)
|
|
|
(21.8
|
)
|
|
|
(17.9
|
)
|
Adjustments for hedge accounting (b)
|
|
|
0.0
|
|
|
|
(0.1
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
Total adjusted debt
|
|
$
|
128.0
|
|
|
$
|
129.0
|
|
|
$
|
131.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity (including minority interest)
|
|
$
|
13.4
|
|
|
$
|
11.8
|
|
|
$
|
11.4
|
|
Adjustments for hedge accounting (b)
|
|
|
(0.3
|
)
|
|
|
(0.5
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
Total adjusted equity
|
|
$
|
13.1
|
|
|
$
|
11.3
|
|
|
$
|
10.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed leverage (to 1)
|
|
|
9.8
|
|
|
|
11.4
|
|
|
|
12.3
|
|
|
|
|
(a)
|
|
Excludes marketable securities related to insurance activities.
|
|
(b)
|
|
Primarily related to market valuation adjustments from derivatives due to movements in interest rates.
|
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
securitizations. In addition, we add our minority interests to our financial statement equity,
because all of the debt of such consolidated entities is included in our total debt. We make hedge
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 securitizations. The hedge
accounting adjustments 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 hedge accounting adjustments on both the
numerator and denominator in order to exclude the interim effects of changes in market interest
rates. For a discussion of our use
of interest rate instruments and other derivatives, see Item 7A. We believe the managed
leverage measure provides our investors with meaningful information regarding managements
decision-making processes.
37
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, 2007, our managed leverage was 9.8 to 1, compared
with 11.4 to 1 a year ago. In 2007, we did not pay any distributions or dividends.
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, 2007 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 and
|
|
|
|
Total
|
|
|
2008
|
|
|
2009-2010
|
|
|
2011-2012
|
|
|
Thereafter
|
|
|
|
(in millions)
|
|
Long-term debt obligations
|
|
$
|
112,317
|
|
|
$
|
32,721
|
|
|
$
|
44,166
|
|
|
$
|
25,631
|
|
|
$
|
9,799
|
|
Interest payments relating to long-term debt
|
|
|
19,753
|
|
|
|
6,140
|
|
|
|
7,495
|
|
|
|
3,116
|
|
|
|
3,002
|
|
Operating lease obligations
|
|
|
153
|
|
|
|
57
|
|
|
|
79
|
|
|
|
12
|
|
|
|
5
|
|
Purchase obligations
|
|
|
4
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
FIN 48 liability*
|
|
|
159
|
|
|
|
113
|
|
|
|
36
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
132,386
|
|
|
$
|
39,033
|
|
|
$
|
51,778
|
|
|
$
|
28,769
|
|
|
$
|
12,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Financial Accounting Standards Board (FASB) issued FASB
Interpretation Number 48,
Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109, Accounting for Income Taxes
(FIN
48).
|
Due to the high degree of uncertainty regarding the timing of potential future cash flows
associated with FIN 48 liabilities, only those liabilities for which we are able to make a
reasonably reliable estimate of the amount and period of payment have been included above. For
additional information on our long-term debt obligations, operating lease obligations and FIN 48
liability, see Notes 10, 18 and 11, respectively, of our Notes to the Financial Statements.
38
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;
|
|
|
|
|
Accumulated depreciation on vehicles subject to operating leases; and
|
|
|
|
|
Off-balance sheet sales of receivables in securitizations and other transactions.
|
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. Note 6 of our Notes to the Financial Statements
contains additional information regarding our allowance for credit losses.
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.
39
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, 2007
|
|
|
|
|
Point
|
|
|
Allowance for
|
|
|
|
|
Change
|
|
|
Credit Losses
|
|
2007 Expense
|
|
|
|
|
(in millions)
|
Assumption
|
|
|
|
|
|
|
|
|
|
|
|
|
Repossession rates *
|
|
+/- 0.1
|
pt.
|
|
|
$40/$
|
(40)
|
|
|
$40/$
|
(40)
|
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 income statement 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. See Note 5 of our Notes to the Financial
Statements for information on net investment in operating leases, including the amount of
accumulated depreciation.
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 237,000 and
300,000 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 historical
auction values, historical return volumes for our leased vehicles, industry-wide used vehicle
prices, our marketing 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.
|
40
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, 2007, if future auction values for our existing portfolio of operating
leases on Ford, Lincoln and Mercury brand vehicles in the U.S. were to decrease by one percent from
our present estimates, the effect would be to increase the depreciation on these vehicles by about
$60 million. Similarly, if return volumes for our existing portfolio of operating leases on Ford,
Lincoln and Mercury brand vehicles in the U.S. were to increase by one percent from our present
estimates, the
effect would be to increase our depreciation on these vehicles by about $10 million. These
increases in depreciation would be charged to depreciation expense during the 2008 through 2011
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 income statement in
Depreciation on vehicles subject to operating
leases.
Off-Balance Sheet Sales of Receivables in Securitizations and Other Transactions
For off-balance sheet securitization transactions, we are required to recognize a gain or loss
on the sale of receivables in the period the sale occurs. We also record and carry our retained
interests in these securitizations as assets on our balance sheet at fair value. These retained
interests include residual interests in securitization transactions, which represent our right to
receive collections on sold receivables in excess of amounts needed to pay principal and interest
payments to investors, servicing fees and other required amounts. Retained interests may also
include subordinated securities and restricted cash held for the benefit of the securitization
investor.
Nature of Estimates Required.
In determining the gain or loss on each sale of finance
receivables and the amount of our retained interests, we allocate the carrying amount of the sold
receivables between the portion sold and the portion retained based on their relative fair value at
the date of sale.
Assumptions Used.
The most significant factors affecting the fair value of assets retained
related to the sale of receivables through securitization transactions that requires us to make
estimates and judgments are:
|
|
|
Expected credit losses over the life of the sold receivables, called lifetime credit
losses;
|
|
|
|
|
Prepayments of sold receivables occurring earlier than scheduled maturities, called
prepayment speeds; and
|
|
|
|
|
Discount rates used to estimate the present value of residual interest in securitization
transactions.
|
To estimate expected lifetime credit losses on the sold receivables, we use statistical models
that divide receivables into segments by credit risk quality, contractual term and whether the
vehicle financed is new or used. We make estimates based on our historical experience and other
factors regarding prepayment speeds and discount rates. These estimates are made separately for
each securitization transaction.
We evaluate the fair value of our retained interests on a quarterly basis and adjust the
estimated market value as necessary. These fair value adjustments are reflected, net of tax, as a
separate component of other comprehensive income included in shareholders interest. The fair
value analysis for our residual interest in securitization transactions largely depends on updating
our estimate of lifetime credit losses and prepayment speeds. If we determine, based on this
updated information, these retained interests are other than temporarily impaired, we record fair
value adjustments in earnings and not shareholders interest. The fair value of subordinated
securities we retain is based on quoted market prices of securities with similar characteristics,
if available, or using discounted cash flow methods with current market rates. The carrying amount
of our restricted cash retained interest normally does not have to be adjusted.
Sensitivity Analysis.
The fair value of the residual interest in securitization transactions
is sensitive to variation in our assumptions of lifetime credit losses, estimated prepayments and
discount rates. Note 7 of our Notes to the Financial Statements identifies the sensitivity of this
asset to changes in each of these assumptions. Changes in these assumptions will also result in a
similar change in the gain or loss recorded in the time period the related receivables are sold.
41
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Accounting Standards Issued But Not Yet Adopted
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157,
Fair
Value Measurements
(SFAS No. 157). This standard defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. SFAS No. 157 does not introduce new requirements for when fair
value measures must be used, but focuses on how to measure fair value. SFAS No. 157 establishes a
fair value hierarchy to classify the sources of information used to measure fair value. SFAS No.
157 is effective for us as of January 1, 2008. Management expects the impact on our financial
condition and results of operations to be immaterial.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115
(SFAS No. 159). This
standard permits entities to measure certain financial assets and liabilities at fair value. The
fair value option may be elected on an instrument by instrument basis and is irrevocable.
Unrealized gains and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for us as of
January 1, 2008. We will adopt the fair value option for available-for-sale securities, which will
result in a cumulative after-tax effect increase of approximately $6 million to the opening balance
of Retained Earnings as of January 1, 2008.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations
(SFAS No. 141R).
This standard establishes principles and requirements for how an acquirer recognizes and measures
acquired identifiable assets, assumed liabilities, noncontrolling interest in the acquiree, and
acquired goodwill or gain from a bargain purchase. SFAS No. 141R also determines what information
the acquirer must disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after January 1, 2009. Management is
assessing the potential impact on our financial condition and results of operations.
In December 2007, the FASB issued SFAS No. 160
, Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51
(SFAS No. 160). This standard establishes
accounting and reporting standards for the noncontrolling interests in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be reported as equity in
the consolidated financial statements. SFAS No. 160 is effective for us as of January 1, 2009 with
early adoption prohibited. SFAS No. 160 shall be applied prospectively as of the beginning of the
fiscal year in which this standard is initially applied. The presentation and disclosure
requirements of this standard shall be applied retrospectively for all periods presented and will
impact how we present and disclose noncontrolling interest and income from noncontrolling interests
in our financial statements.
42
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Outlook
We expect to be profitable in 2008, although at a lower level than in 2007. This is down from
our outlook of about equal announced on January 24, 2008. Our revised outlook primarily reflects
higher depreciation expense and severity as a result of continued auction market weakness. The
lower earnings expected in 2008 compared with 2007 primarily reflect higher credit losses, lower
volume, higher net losses related to market valuation adjustments from derivatives and higher
depreciation expense, partially offset by higher margin and lower operating costs.
In January 2008, we resumed the use of designated hedge accounting for some of our
derivatives, which should reduce our earnings volatility due to market valuation adjustments from
derivatives.
Effective January 1, 2008, to reduce ongoing obligations to us and to be consistent with
general industry practice, Ford began paying interest supplements and residual value support to us
at the time we purchase eligible contracts from dealers. These changes are expected to result in
accelerated payments of about $5 billion through 2009 that under the prior method would have been
paid after 2009. These changes will not have a significant impact on our income statement or our
statement of shareholders interest/equity because we will continue to recognize the income over
the term of the contract. Finance receivables and net investment in operating leases purchased or
originated as of January 1, 2008 will be reported on our balance sheet net of unearned interest
supplements and residual value support.
Subject to our ability to execute our funding plan and maintain sufficient liquidity, we plan
to increase our managed leverage to about 11.5 to 1 by the end of 2008, up from 9.8 to 1 at
year-end 2007, and pay distributions beginning in 2008. These distributions will reflect our 2008
net income plus a return of capital reflecting the planned increase in leverage as well as a
projected smaller receivable base. Based upon these factors, we forecast our distributions to
total about $5 billion through 2009.
At year-end 2008, we anticipate managed receivables to be in the range of $130 billion to $140
billion. The decrease primarily reflects the impact of net receivable liquidations, the
implementation of alternative business arrangements and other strategic actions. We expect the
funding structure required for this level of managed receivables to be the following (in billions,
except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2008
|
Funding Structure
|
|
|
|
|
|
|
|
|
|
Ford Interest Advantage
|
|
$
|
4
|
|
|
|
|
5
|
|
Asset-backed commercial paper
|
|
|
12
|
|
|
|
|
15
|
|
Term asset-backed securities
|
|
|
55
|
|
|
|
|
65
|
|
Term debt and other
|
|
|
58
|
|
|
|
|
62
|
|
Equity
|
|
|
11
|
|
|
|
|
12
|
|
Cash, cash equivalents and marketable securities*
|
|
|
(13
|
)
|
|
|
|
(16
|
)
|
|
|
|
Total funding structure
|
|
$
|
130
|
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
Memo:
|
|
|
|
|
|
|
|
|
|
Securitized funding as a percentage of managed receivables
|
|
|
49
|
|
|
|
|
54
|
%
|
|
|
|
*
|
|
Excludes marketable securities related to
insurance activities.
|
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.
43
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Automotive Related:
|
|
|
Continued decline in Fords market share;
|
|
|
|
|
Continued or increased price competition for Ford vehicles resulting from industry
overcapacity, currency fluctuations or other factors;
|
|
|
|
|
An increase in or acceleration of market shift away from sales of trucks, sport utility
vehicles, or other more profitable vehicles, particularly in the United States;
|
|
|
|
|
A significant decline in industry sales and our financing of those sales, particularly
in the United States or Europe, resulting from slowing economic growth, geo-political
events or other factors;
|
|
|
|
|
Lower-than-anticipated market acceptance of new or existing Ford products;
|
|
|
|
|
Continued or increased high prices for or reduced availability of fuel;
|
|
|
|
|
Adverse effects from the bankruptcy or insolvency of, change in ownership or control
of, or alliances entered into by a major competitor;
|
|
|
|
|
Economic distress of suppliers that has in the past or may in the future require Ford
to provide financial support or take other measures to ensure supplies of components or
materials;
|
|
|
|
|
Work stoppages at Ford or supplier facilities or other interruptions of supplies;
|
|
|
|
|
Single-source supply of components or materials;
|
|
|
|
|
Inability to implement Memorandum of Understanding with UAW to fund and discharge
retiree health care obligations because of failure to obtain court approval or otherwise;
|
|
|
|
|
The discovery of defects in Ford vehicles resulting in delays in new model launches,
recall campaigns or increased warranty costs;
|
|
|
|
|
Increased safety, emissions (e.g., CO2), fuel economy or other regulation resulting in
higher costs, cash expenditures and/or sales restrictions;
|
|
|
|
|
Unusual or significant litigation or governmental investigations arising out of alleged
defects in Ford products or otherwise;
|
|
|
|
|
A change in Fords requirements for parts or materials where it has entered into
long-term supply arrangements that commit it to purchase minimum or fixed quantities of
certain parts or materials, or to pay a minimum amount to the seller (take-or-pay
contracts);
|
|
|
|
|
Adverse effects on our results from a decrease in or cessation of government incentives;
|
|
|
|
|
Adverse effects on Fords operations resulting from geo-political or other events;
|
|
|
|
|
Substantial negative operating-related cash flows for the near- to medium-term
affecting Fords ability to meet its obligations, invest in its business or refinance its
debt;
|
|
|
|
|
Substantial levels of indebtedness adversely affecting Fords financial condition or
preventing Ford from fulfilling its debt obligations (which may grow because Ford is able
to incur substantially more debt, including additional secured debt);
|
Ford Credit Related:
|
|
|
Inability to access debt or securitization markets around the world at competitive
rates or in sufficient amounts due to additional credit rating downgrades, market
volatility, market disruptions or otherwise;
|
|
|
|
|
Higher-than-expected credit losses;
|
|
|
|
|
Increased competition from banks or other financial institutions seeking to increase
their share of financing Ford vehicles;
|
|
|
|
|
Collection and servicing problems related to our finance receivables and net investment
in operating leases;
|
|
|
|
|
Lower-than-anticipated residual values or higher-than-expected return volumes for
leased vehicles;
|
|
|
|
|
New or increased credit, consumer or data protection or other regulations resulting in
higher costs and/or additional financing restrictions;
|
|
|
|
|
Changes in Fords operations or changes in Fords marketing programs could result in a
decline in our financing volumes;
|
General:
|
|
|
Labor or other constraints on Fords or our ability to restructure its or our business;
|
|
|
|
|
Substantial pension and postretirement healthcare and life insurance liabilities
impairing Fords or our liquidity or financial condition;
|
|
|
|
|
Worse-than-assumed economic and demographic experience for postretirement benefit plans
(e.g., discount rates, investment returns, and health care cost trends);
|
|
|
|
|
Currency or commodity price fluctuations; and
|
|
|
|
|
Changes in interest rates.
|
44
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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.
45
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. The extent to
which we effectively identify, assess, monitor and manage these risks is critical to our financial
condition. 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;
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|
|
|
|
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
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 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.
Direct responsibility for the execution of our market risk management strategies resides with
Fords Treasurers Office and is 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.
46
Item 7A. Quantitative And Qualitative Disclosures About Market Risk (Continued)
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 execute the following foreign currency derivatives to convert substantially
all of our foreign currency debt obligations to the local country currency of the receivables:
|
|
|
Cross-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 is insignificant. For additional information on our derivatives, see Notes
1 and 12 of our Notes to the Financial Statements.
Interest Rate Risk
Nature of Exposure
Our primary market risk exposure is interest rate risk, and the particular market 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 debt funding those assets 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 securitizations 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.
47
Item 7A. Quantitative And Qualitative Disclosures About Market Risk (Continued)
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 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 Notes 1 and 12 of our Notes
to the Financial Statements.
We determine the sensitivity of our economic value to hypothetical changes in interest rates.
We then enter into interest rate swaps 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
approximately 78% of our total on-balance sheet finance receivables at December 31, 2007. 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, 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.
48
Item 7A. Quantitative And Qualitative Disclosures About Market Risk (Continued)
Quantitative Disclosure
As a result of our interest rate risk management process, in the aggregate our debt combined
with the derivative instruments economically hedging the debt re-prices faster than our assets.
Other things being equal, this means that during a period of rising interest rates, the interest
rates paid on our debt will increase more rapidly than the interest rates earned on our assets,
thereby initially reducing our pre-tax cash flow. Correspondingly, during a period of falling
interest rates, we would expect our pre-tax cash flow to initially increase.
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 2007 and 2006 was as follows:
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Pre-Tax Cash Flow Sensitivity given a one
|
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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, 2007
|
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$(16
|
)
|
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|
$16
|
|
December 31, 2006
|
|
|
(86
|
)
|
|
|
86
|
|
Based on assumptions included in the analysis, our sensitivity to a one-percentage point
instantaneous change in interest rates was lower at year-end 2007 than at year-end 2006. This
change primarily reflects the result of normal fluctuations within the approved tolerances of our
risk management strategy.
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.
49
Item 7A. Quantitative And Qualitative Disclosures About Market Risk (Continued)
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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|
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|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in billions)
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
Pay-fixed, receive-floating, excluding securitization swaps
|
|
$
|
42
|
|
|
$
|
33
|
|
Pay-floating, receive-fixed, excluding securitization swaps
|
|
|
29
|
|
|
|
31
|
|
Pay-floating, receive-floating (basis), excluding
securitization swaps
|
|
|
*
|
|
|
|
*
|
|
Securitization swaps
|
|
|
86
|
|
|
|
73
|
|
|
|
|
|
|
|
|
Total interest rate swaps
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|
$
|
157
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|
|
$
|
137
|
|
Other Derivatives
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|
|
|
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|
Cross-currency swaps
|
|
|
12
|
|
|
|
14
|
|
Foreign currency forwards
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|
12
|
|
|
|
8
|
|
Interest rate forwards
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*
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*
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Total notional value
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$
|
181
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|
|
$
|
159
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|
|
|
|
|
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*
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|
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. At December 31, 2007, our total derivative
notional value was $181 billion, approximately $22 billion higher than a year ago. The increase
was driven by higher securitization swap notional balances reflecting our increased utilization of
securitization as a funding source, and higher pay-fixed, receive-floating swap notional balances
compensating for lower levels of fixed-rate debt which are a natural hedge to fixed-rate assets.
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, 2007 was $1.4 billion,
approximately $100 million lower than a year ago. For additional information see Notes 1 and 12 of
our Notes to the Financial Statements.
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
mark-to-market 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 Monte Carlo simulation technique to assess our potential
exposure by tenor, defined at 95% confidence level. Our exposures are monitored on a regular basis
and are included in periodic reporting to Fords Treasurer.
Substantially all of our counterparty exposures are with counterparties that have long-term
credit ratings of single-A or better. Our guideline for counterparty minimum long-term credit
ratings is BBB-. For additional information on our derivatives, see Notes 1 and 12 of our Notes to
the Financial Statements.
50
Item 7A. Quantitative And Qualitative Disclosures About Market Risk (Continued)
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 or improper operation of
systems 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, and protect
the reliability of financial and other data. 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 the 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
-
43 immediately following
the signature pages of this Report.
Selected quarterly financial data (unaudited) for us and our consolidated subsidiaries for
2007 and 2006 are disclosed in Note 17 of the Notes to the Financial Statements.
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ITEM 9.
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|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
51
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, 2007 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, 2007. 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, 2007. The effectiveness of the Companys
internal control over financial reporting as of December 31, 2007, 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 fourth quarter
of 2007 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
In October 2007, FCE agreed with a third party to establish a joint venture finance company.
The transaction is subject to certain conditions, including regulatory approval. If the
transaction is completed, FCE will transfer the majority of its business and assets from four
European locations, constituting approximately 6% of FCEs current balance sheet, into the joint
venture. The joint venture will support the sale of Ford vehicles in these markets.
Additional information about Ford can be found in Fords Annual Report on Form 10-K for the
year ended December 31, 2007, filed separately with the SEC and included as an exhibit to this
Report (without Financial Statements or Exhibits).
52
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Not required.
ITEM 11. EXECUTIVE COMPENSATION
Not required.
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ITEM 12.
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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
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|
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|
|
Full Year
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(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
|
|
$
|
9.4
|
|
|
$
|
8.3
|
|
|
|
|
|
|
|
|
|
|
Audit-related fees
for support of
funding transactions, attestation
services, assistance with interpretation
of accounting standards, and services
related to divestitures
|
|
|
2.0
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1.9
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
All other fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
13.3
|
|
|
$
|
11.3
|
|
|
|
|
|
|
|
|
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.
53
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 Income for the Years Ended December 31, 2007, 2006 and 2005
Consolidated Balance Sheet, December 31, 2007 and 2006
Consolidated Statement of Shareholders Interest/Equity, December 31, 2007, 2006 and 2005
Consolidated Statement of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005
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-43 immediately following the signature pages of this report.
(a) 2.
Financial Statement Schedules
Schedules have been omitted because 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.
(a) 3.
Exhibits
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
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.
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|
|
|
|
|
54
|
|
|
|
|
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.
|
|
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-B
|
|
Indenture dated as
of November 1, 1987
between Ford Motor
Credit Company and
Continental Bank,
National
Association
relating to Debt
Securities.
|
|
Filed as Exhibit 4-A to Ford Motor
Credit Company Current Report on
Form 8-K dated December 10, 1990
and incorporated herein by
reference. File No. 1-6368.
|
|
|
|
|
|
|
|
|
|
|
Exhibit 4-C
|
|
Indenture dated as
of August 1, 1994
between Ford Motor
Credit Company and
First Union
National Bank
relating to Debt
Securities.
|
|
Filed as Exhibit 4-A to Ford Motor
Credit Company Registration
Statement No. 33-55237.
|
|
|
|
|
|
|
|
|
|
|
Exhibit 10-A
|
|
Copy of Amended and
Restated Profit
Maintenance
Agreement dated as
of January 1, 2002
between Ford Motor
Credit Company and
Ford Motor Company.
|
|
Filed as
Exhibit 10-A to
Ford Motor Credit
Company Report on
Form 10-K for the
year ended
December 31, 2001
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.
|
55
|
|
|
|
|
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, 2007.
|
|
Incorporated herein by
reference to Ford Motor
Companys Annual Report
on Form 10-K for the year
ended December 31, 2007.
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 Commission upon request.
56
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 27, 2008
|
|
|
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 27, 2008
|
|
|
|
|
|
/s/ Kenneth R. Kent*
(Kenneth R. Kent)
|
|
Director, Vice Chairman, Chief
Financial Officer and Treasurer
(principal financial officer and
principal accounting officer)
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Terry D. Chenault*
(Terry D. Chenault)
|
|
Director and Executive Vice President
President, Global Operations,
Technology and Risk Management
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Peter J. Daniel*
(Peter J. Daniel)
|
|
Director and Audit Committee Member
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Donat R. Leclair*
(Donat R. Leclair, Jr.)
|
|
Director and Audit Committee Chairman
|
|
February 27, 2008
|
|
|
|
|
|
/s/ John T. Noone*
(John T. Noone)
|
|
Director and Executive Vice President -
President, Global Marketing and Sales
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Neil M. Schloss*
(Neil M. Schloss)
|
|
Director and Audit Committee Member
|
|
February 27, 2008
|
|
|
|
|
|
* By
|
/s/ Corey M. MacGillivray
(Corey M. MacGillivray)
|
|
Attorney-in-Fact
|
|
February 27, 2008
|
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
Ford Motor Credit Company LLC
(formerly Ford Motor Credit Company):
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income, shareholders interest /equity and 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, 2007 and December 31, 2006, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2007 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, 2007, 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 27, 2008
FC-1
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Financing revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
6,343
|
|
|
$
|
5,608
|
|
|
$
|
5,286
|
|
Retail
|
|
|
3,475
|
|
|
|
3,649
|
|
|
|
3,932
|
|
Interest supplements and other support costs earned
from affiliated companies (Note 15)
|
|
|
4,592
|
|
|
|
3,487
|
|
|
|
3,259
|
|
Wholesale
|
|
|
2,132
|
|
|
|
2,419
|
|
|
|
1,232
|
|
Other
|
|
|
174
|
|
|
|
215
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
Total financing revenue
|
|
|
16,716
|
|
|
|
15,378
|
|
|
|
13,930
|
|
Depreciation on vehicles subject to operating leases
|
|
|
(6,188
|
)
|
|
|
(5,189
|
)
|
|
|
(4,430
|
)
|
Interest expense
|
|
|
(8,630
|
)
|
|
|
(7,818
|
)
|
|
|
(6,616
|
)
|
|
|
|
|
|
|
|
|
|
|
Net financing margin
|
|
|
1,898
|
|
|
|
2,371
|
|
|
|
2,884
|
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income related to sales
of receivables (Note 7)
|
|
|
391
|
|
|
|
668
|
|
|
|
1,513
|
|
Insurance premiums earned, net (Note 2)
|
|
|
169
|
|
|
|
182
|
|
|
|
192
|
|
Other income, net
|
|
|
1,362
|
|
|
|
1,019
|
|
|
|
845
|
|
|
|
|
|
|
|
|
|
|
|
Total financing margin and other revenue
|
|
|
3,820
|
|
|
|
4,240
|
|
|
|
5,434
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
1,929
|
|
|
|
2,038
|
|
|
|
2,185
|
|
Provision for credit losses (Note 6)
|
|
|
588
|
|
|
|
95
|
|
|
|
166
|
|
Insurance expenses (Note 2)
|
|
|
88
|
|
|
|
154
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,605
|
|
|
|
2,287
|
|
|
|
2,511
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,215
|
|
|
|
1,953
|
|
|
|
2,923
|
|
Provision for income taxes (Note 11)
|
|
|
446
|
|
|
|
670
|
|
|
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests
|
|
|
769
|
|
|
|
1,283
|
|
|
|
1,864
|
|
Minority interests in net income of subsidiaries
|
|
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
769
|
|
|
|
1,283
|
|
|
|
1,863
|
|
Income from discontinued operations (Note 13)
|
|
|
|
|
|
|
|
|
|
|
37
|
|
Gain on disposal of discontinued operations (Note 13)
|
|
|
6
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
775
|
|
|
$
|
1,283
|
|
|
$
|
1,904
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2007
|
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (Note 1)
|
|
$
|
14,137
|
|
|
$
|
12,331
|
|
Marketable securities (Note 3)
|
|
|
3,155
|
|
|
|
10,161
|
|
Finance receivables, net (Note 4)
|
|
|
111,468
|
|
|
|
109,405
|
|
Net investment in operating leases (Note 5)
|
|
|
29,663
|
|
|
|
25,939
|
|
Retained interest in securitized assets (Note 7)
|
|
|
653
|
|
|
|
990
|
|
Notes and accounts receivable from affiliated companies
|
|
|
906
|
|
|
|
950
|
|
Derivative financial instruments (Note 12)
|
|
|
2,811
|
|
|
|
2,445
|
|
Other assets (Note 9)
|
|
|
6,230
|
|
|
|
5,752
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
169,023
|
|
|
$
|
167,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS INTEREST/EQUITY
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
Customer deposits, dealer reserves and other
|
|
$
|
1,837
|
|
|
$
|
1,509
|
|
Affiliated companies
|
|
|
2,308
|
|
|
|
3,648
|
|
|
|
|
|
|
|
|
Total accounts payable
|
|
|
4,145
|
|
|
|
5,157
|
|
Debt (Note 10)
|
|
|
139,411
|
|
|
|
139,740
|
|
Deferred income taxes
|
|
|
5,380
|
|
|
|
6,783
|
|
Derivative financial instruments (Note 12)
|
|
|
1,376
|
|
|
|
937
|
|
Other liabilities and deferred income (Note 9)
|
|
|
5,314
|
|
|
|
3,588
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
155,626
|
|
|
|
156,205
|
|
|
|
|
|
|
|
|
|
|
Minority interests in net assets of subsidiaries
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Shareholders interest/equity
|
|
|
|
|
|
|
|
|
Capital stock and paid in surplus
|
|
|
|
|
|
|
5,149
|
|
Shareholders interest
|
|
|
5,149
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
1,730
|
|
|
|
825
|
|
Retained earnings
|
|
|
6,515
|
|
|
|
5,791
|
|
|
|
|
|
|
|
|
Total shareholders interest/equity
|
|
|
13,394
|
|
|
|
11,765
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders interest/equity
|
|
$
|
169,023
|
|
|
$
|
167,973
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income/(Loss)
|
|
|
|
|
|
|
Stock &
|
|
|
Share-
|
|
|
|
|
|
|
Unrealized
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
holders
|
|
|
Retained
|
|
|
Gain/(Loss)
|
|
|
Currency
|
|
|
Derivative
|
|
|
|
|
|
|
Surplus
|
|
|
Interest
|
|
|
Earnings
|
|
|
on Assets
|
|
|
Translation
|
|
|
Instruments
|
|
|
Total
|
|
Balance at December 31, 2004
|
|
$
|
5,142
|
|
|
$
|
|
|
|
$
|
6,725
|
|
|
$
|
196
|
|
|
$
|
656
|
|
|
$
|
44
|
|
|
$
|
12,763
|
|
2005 comprehensive income/(loss) activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,904
|
|
Change in value of retained interest in securitized
assets (net of tax of $18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
Unrealized loss on marketable securities (net of tax of $4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
Less: reclassification adjustment for gains on marketable
securities realized in net income (net of tax of $1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(469
|
)
|
|
|
|
|
|
|
(469
|
)
|
Net gain on derivative instruments (net of tax of $35)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
61
|
|
|
|
62
|
|
Less: reclassification adjustment for gains on derivative
instruments realized in net income (net of tax of $32)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income/(loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
1,904
|
|
|
|
(41
|
)
|
|
|
(468
|
)
|
|
|
4
|
|
|
|
1,399
|
|
Cash dividends paid in 2005 and dividend transfer (a)
|
|
|
|
|
|
|
|
|
|
|
(2,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
5,142
|
|
|
$
|
|
|
|
$
|
5,871
|
|
|
$
|
155
|
|
|
$
|
188
|
|
|
$
|
48
|
|
|
$
|
11,404
|
|
2006 comprehensive income/(loss) activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,283
|
|
Change in value of retained interest in securitized
assets (net of tax of $33)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
(64
|
)
|
Unrealized gain on marketable securities (net of tax of $9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Less: reclassification adjustment for gains on marketable
securities realized in net income (net of tax of $5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523
|
|
|
|
|
|
|
|
523
|
|
Net gain on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
Less: reclassification adjustment for gains on derivative
instruments realized in net income (net of tax of $20)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income/(loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
1,283
|
|
|
|
(62
|
)
|
|
|
532
|
|
|
|
(36
|
)
|
|
|
1,717
|
|
Paid-in surplus
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Cash dividends paid in 2006 and dividend transfer (a)
|
|
|
|
|
|
|
|
|
|
|
(1,363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
5,149
|
|
|
$
|
|
|
|
$
|
5,791
|
|
|
$
|
93
|
|
|
$
|
720
|
|
|
$
|
12
|
|
|
$
|
11,765
|
|
Adjustment for the adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
Conversion of capital stock and paid-in surplus to shareholders interest
|
|
|
(5,149
|
)
|
|
|
5,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 comprehensive income/(loss) activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
775
|
|
Change in value of retained interest 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 gain on marketable
securities realized in net income (net of tax of $11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
974
|
|
|
|
|
|
|
|
974
|
|
Net gain on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
Less: reclassification adjustment for gains 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
|
)
|
|
|
1,680
|
|
Paid in-surplus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions/dividends paid in 2007 and distributions/dividend
transfer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
|
|
|
$
|
5,149
|
|
|
$
|
6,515
|
|
|
$
|
38
|
|
|
$
|
1,692
|
|
|
$
|
|
|
|
$
|
13,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Dividends included the transfer of Ford Credit assets to Ford with a net book value of $8 million in the First Quarter 2005 and a net book value of $13 million in the Third
Quarter 2006.
|
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
775
|
|
|
$
|
1,283
|
|
|
$
|
1,904
|
|
Income related to discontinued operations
|
|
|
(6
|
)
|
|
|
|
|
|
|
(41
|
)
|
Adjustments to reconcile net income to net cash provided by operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
588
|
|
|
|
95
|
|
|
|
166
|
|
Depreciation and amortization
|
|
|
6,778
|
|
|
|
5,489
|
|
|
|
4,937
|
|
Net gain on sales of finance receivables
|
|
|
(5
|
)
|
|
|
(88
|
)
|
|
|
(87
|
)
|
(Decrease)/increase in deferred income taxes
|
|
|
(1,382
|
)
|
|
|
(94
|
)
|
|
|
737
|
|
Net change in other assets
|
|
|
(288
|
)
|
|
|
915
|
|
|
|
198
|
|
Net change in other liabilities
|
|
|
286
|
|
|
|
(26
|
)
|
|
|
(2,158
|
)
|
Net purchases of held-for-sale wholesale receivables
|
|
|
|
|
|
|
|
|
|
|
(1,188
|
)
|
All other operating activities
|
|
|
27
|
|
|
|
192
|
|
|
|
837
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
6,773
|
|
|
|
7,766
|
|
|
|
5,305
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of finance receivables (other than wholesale)
|
|
|
(39,005
|
)
|
|
|
(44,647
|
)
|
|
|
(38,937
|
)
|
Collection of finance receivables (other than wholesale)
|
|
|
37,263
|
|
|
|
35,008
|
|
|
|
38,260
|
|
Purchase of operating lease vehicles
|
|
|
(16,517
|
)
|
|
|
(15,275
|
)
|
|
|
(15,318
|
)
|
Liquidation of operating lease vehicles
|
|
|
7,808
|
|
|
|
6,429
|
|
|
|
9,043
|
|
Net change in wholesale receivables
|
|
|
1,986
|
|
|
|
5,856
|
|
|
|
978
|
|
Net change in retained interest in securitized assets
|
|
|
401
|
|
|
|
672
|
|
|
|
4,580
|
|
Net change in notes receivable from affiliated companies
|
|
|
148
|
|
|
|
31
|
|
|
|
343
|
|
Proceeds from sales of receivables and retained interests
|
|
|
697
|
|
|
|
5,120
|
|
|
|
20,935
|
|
Purchases of marketable securities
|
|
|
(8,795
|
)
|
|
|
(19,610
|
)
|
|
|
(6,169
|
)
|
Proceeds from sales and maturities of marketable securities
|
|
|
15,974
|
|
|
|
13,591
|
|
|
|
3,072
|
|
Proceeds from sales of businesses
|
|
|
157
|
|
|
|
|
|
|
|
2,057
|
|
Net change in derivatives
|
|
|
(188
|
)
|
|
|
178
|
|
|
|
1,349
|
|
Transfer of cash balances upon disposition of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
All other investing activities
|
|
|
(422
|
)
|
|
|
16
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by investing activities
|
|
|
(493
|
)
|
|
|
(12,631
|
)
|
|
|
20,186
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
32,383
|
|
|
|
45,533
|
|
|
|
20,882
|
|
Principal payments on long-term debt
|
|
|
(38,308
|
)
|
|
|
(35,836
|
)
|
|
|
(32,432
|
)
|
Change in short-term debt, net
|
|
|
1,073
|
|
|
|
(6,152
|
)
|
|
|
(8,663
|
)
|
Cash distributions/dividends paid
|
|
|
|
|
|
|
(1,350
|
)
|
|
|
(2,750
|
)
|
All other financing activities
|
|
|
(105
|
)
|
|
|
(140
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by financing activities
|
|
|
(4,957
|
)
|
|
|
2,055
|
|
|
|
(22,980
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
473
|
|
|
|
343
|
|
|
|
(386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flows from continuing operations
|
|
|
1,796
|
|
|
|
(2,467
|
)
|
|
|
2,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations provided by operating activities
|
|
|
10
|
|
|
|
|
|
|
|
71
|
|
Cash flows from discontinued operations used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
$
|
1,806
|
|
|
$
|
(2,467
|
)
|
|
$
|
2,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
$
|
12,331
|
|
|
$
|
14,798
|
|
|
$
|
12,668
|
|
Change in cash and cash equivalents
|
|
|
1,806
|
|
|
|
(2,467
|
)
|
|
|
2,130
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
14,137
|
|
|
$
|
12,331
|
|
|
$
|
14,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information for continuing operations (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
8,387
|
|
|
$
|
7,495
|
|
|
$
|
6,129
|
|
Income taxes paid
|
|
|
1,898
|
|
|
|
533
|
|
|
|
268
|
|
|
|
|
(a)
|
|
Refer to Note 7, cash flow, for non-cash supplementary data related to the consolidation of our wholesale
securitization program.
|
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
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, accumulated
depreciation on vehicles subject to operating leases and assumptions related to off-balance sheet
sales of receivables in securitizations and other transactions.
Nature of Operations
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 purchasers, 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 and finance dealership
real estate).
We conduct our financing operations directly or 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. Our business segments include
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. Additional financial information regarding our operations by
business segment and operations by geographic region are shown in Note 16.
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.
The majority of our finance receivables and net investment in operating leases are
geographically diversified throughout the North America Segment. Outside the North America
Segment, finance receivables and net investment in operating leases are concentrated in Europe,
Asia-Pacific and Latin America.
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.
FC-6
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 1. ACCOUNTING POLICIES Continued
Conversion to Limited Liability Company
Effective May 1, 2007, we converted our form of organization from a Delaware corporation to a
Delaware limited liability company (LLC) and changed our name to Ford Motor Credit Company LLC.
The purpose of converting from a corporation to a limited liability company is to enable us to
operate our business in a more tax efficient manner. This conversion had no material impact on our
results of operations or financial condition.
For periods subsequent to the conversion to an LLC, our federal and state income tax
liabilities are determined under a tax sharing agreement with Ford. Income tax expense is
generally calculated as if we file our own federal and state income tax returns as an entity
taxable as a corporation.
Revenue Recognition
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.
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 rental payments on operating leases and 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 and 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 finance receivables and leases are outstanding.
Sales of Receivables
We securitize finance receivables and net investment in operating leases and sell retail
installment sale contracts in whole-loan sale transactions to fund our operations and to maintain
liquidity. Most of our securitizations do not meet the criteria for off-balance sheet treatment.
As a result, the securitized assets and associated debt remain on our balance sheet and no gain or
loss is recorded for these transactions.
We record our sales of receivables as off-balance sheet when the following criteria are met:
|
|
|
The receivables are isolated from the transferor we transfer the receivables to
bankruptcy-remote special purpose entities (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. In our off-balance sheet transactions we
generally use a qualifying SPE or we sell the receivables to an independent entity. In
either case, we do not restrict the transferee from pledging or exchanging the
receivables or beneficial interests.
|
|
|
|
|
The transferor does 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.
|
FC-7
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 1. ACCOUNTING POLICIES Continued
For off-balance sheet sales of receivables, gains or losses are recognized in the period in
which the sale occurs. We retain certain interests in receivables sold in off-balance sheet
securitization transactions. In determining the gain or loss on each sale of finance receivables,
the investment in the sold receivables pool is allocated between the portions sold and retained
based on their relative fair values at the date of sale. Retained interests may include residual
interest in securitizations, restricted cash held for the benefit of securitization investors and
subordinated securities. These interests are recorded at fair value with unrealized gains recorded,
net of tax, as a separate component of
Accumulated other comprehensive income
in
Shareholders
interest/equity
. 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. We do not retain any
interests in the whole-loan sale transactions but continue to service the sold receivables.
In both off-balance sheet securitization transactions and whole-loan sales, we also 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. We establish a servicing asset or
liability when the servicing fee does not adequately compensate us for retaining the servicing
rights. Interest supplement payments due from affiliates related to receivables sold in
off-balance sheet securitizations or whole-loan sale transactions are recorded, on a present value
basis, as a receivable in
Other assets
on our balance sheet at the time the receivables are sold.
Present value accretion is recognized in
Investment and other income related to sales of
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.
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
12 months. We also consider off-balance sheet funding channels in connection with our
quarterly receivable classification determination.
FC-8
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 1. ACCOUNTING POLICIES Continued
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. Beginning in November 2005, all wholesale receivables are classified as HFI at
origination. Prior to November 2005, certain wholesale receivables were originally classified
as HFS because we had committed to sell these receivables to an off-balance sheet trust. All
retail 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 the
Investment and other income related to sales of
receivables
line in the income statement. 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. See
Proceeds from sales of receivables and
retained interests
in Note 7 for details on the proceeds from the sale of receivables that were
originally classified as HFI.
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 interest 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 interest will be
classified as investing cash inflows.
As of December 31, 2007 and 2006 there are no finance receivables classified as
held-for-sale.
Depreciation
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 reflect 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 also monitor our portfolio of vehicles subject to operating leases for
impairment indicators.
FC-9
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 1. ACCOUNTING POLICIES Continued
Cash and Cash Equivalents and Marketable Securities
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
. Our cash and cash equivalents include short-term
United States Treasury bills, federal agency securities, A-1/P-1 (or higher) rated commercial
paper, and bank time deposits with investment grade institutions. The book value of cash and cash
equivalents approximates fair value because of the short maturities of these instruments. We
review our disbursement accounts and reclassify any aggregate negative balances to a liability
account included in
Accounts payable
on our balance sheet. See Note 7 for additional information
on cash that supports our on-balance sheet securitization transactions.
Marketable securities consist of investments in U.S. government, corporate debt and equities,
mortgage-backed securities, government-sponsored enterprises and non-U.S. government securities.
At acquisition, our marketable securities are classified as available-for-sale or held-to-maturity.
Available-for-sale securities are recorded at fair value with unrealized gains and losses excluded
from income and reported, net of tax, as a separate component of
Accumulated other comprehensive
income
in
Shareholders interest/equity
. Held-to-maturity securities are recorded at amortized
cost. The basis of cost used in determining realized gains and losses is specific identification.
See Note 3 for additional information on marketable securities.
We recognized earnings of $899 million, $819 million and $560 million in 2007, 2006, and 2005,
respectively, related to interest and investment income on our cash and cash equivalents and
marketable securities. These amounts are included in
Other income, net
.
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. The allowance 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 income statement. Finance
receivables and lease investments 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 and lease investments
previously charged off as uncollectible are credited to the allowance for credit losses.
Derivative Financial Instruments
As part of our risk management strategy, we use interest rate swaps and foreign exchange
derivatives to mitigate our risk exposure. Interest rate swaps are used to manage the effects of
interest rate fluctuations. Foreign currency exchange agreements, including forward contracts and
swaps, are used to manage foreign exchange exposure. We do not engage in any speculative activities
in the derivative markets. All derivatives are recognized on the balance sheet at fair value. The
fair value of our interest rate and foreign exchange derivatives is calculated using current market
rates.
Although our derivatives economically hedge our interest rate and currency exchange rate
risks, we may not apply designated hedge accounting. Some derivatives may not qualify for hedge
accounting; for others we may elect to not apply hedge accounting. For derivatives which do
qualify for hedge accounting, we may designate as a hedge of the fair value of a recognized asset
or liability (fair value hedge), or of the variability of cash flows to be received or paid
related to a recognized asset or liability (cash flow hedge) or net assets of certain foreign
entities to offset the translation and economic exposure related to our investment in these
entities (net investment hedge). 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.
FC-10
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 1. ACCOUNTING POLICIES Continued
Changes in the value of a derivative not designated for hedge accounting are recorded
currently in earnings. Changes in the value of a derivative that is designated as a fair value
hedge, along with offsetting changes in the fair value of the underlying hedged exposure, are
recorded currently in earnings. Changes in the value of a derivative that is designated as a cash
flow hedge are recorded net of tax, to the extent the hedge is effective, as a separate component
of
Accumulated other comprehensive income
in
Shareholders interest/equity
. Changes in the value
of a derivative that is designed as a net investment hedge, excluding the ineffective portion of
the hedge, are included in
Accumulated other comprehensive income
as a foreign currency translation
adjustment until the hedged investment is sold or liquidated. We report the cash flows related to
all derivative activity, regardless of designation, in
Cash flows from investing activities
in our
Statement of cash flows.
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 item continues to be reported as part of the basis of the item and is
amortized over its remaining life. When a derivative is de-designated from a cash flow hedge
relationship, all changes in the fair value of the derivative instrument are included in earnings
each period until the derivative instrument matures, unless the derivative is subsequently
designated in another hedge relationship.
We manage our foreign currency and interest rate counterparty credit risks by establishing
limits and monitoring the financial condition of counterparties. The amount of exposure we may
have to a single counterparty on a worldwide basis is limited by company policy. In the unlikely
event that a counterparty fails to meet the terms of a foreign currency or an interest rate
instrument, risk is limited to the fair value of the derivative instrument. We also enter into
master netting agreements with counterparties that usually allow for netting of certain exposures.
To ensure consistency in our treatment of derivative and non-derivative exposures with regard to
these agreements, our accounting policy is to not offset fair value amounts of our derivative
assets and liabilities in our financial statements. This policy represents a change as of December
31, 2007 and has been applied retrospectively to the 2006 balance sheet.
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/equity
. Gains and losses arising from
transactions denominated in a currency other than the functional currency are included in
Other
income, net
.
FC-11
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 our wholly owned subsidiary. TARIC offers a
variety of products and services, including physical damage insurance and extended service plan
contracts.
Revenue Recognition
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 are as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in millions)
|
|
Insurance claims
|
|
$
|
71
|
|
|
$
|
128
|
|
|
$
|
140
|
|
Claim adjustment expenses
|
|
|
5
|
|
|
|
9
|
|
|
|
8
|
|
Amortization of deferred acquisition costs
|
|
|
12
|
|
|
|
17
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
Insurance expenses
|
|
$
|
88
|
|
|
$
|
154
|
|
|
$
|
160
|
|
|
|
|
|
|
|
|
|
|
|
The liability for reported insurance claims and an estimate of unreported insurance claims,
based on past experience, was $37 million and $50 million at December 31, 2007 and 2006,
respectively, and was included in
Other liabilities and deferred income
.
Reinsurance
TARICs reinsurance activity primarily consists of ceding a majority of its automotive service
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 $179 million, $285 million and $382 million in
2007, 2006 and 2005, respectively.
The effect of reinsurance on premiums written and earned is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Written
|
|
|
Earned
|
|
|
Written
|
|
|
Earned
|
|
|
Written
|
|
|
Earned
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$
|
284
|
|
|
$
|
459
|
|
|
$
|
289
|
|
|
$
|
611
|
|
|
$
|
522
|
|
|
$
|
762
|
|
Assumed
|
|
|
10
|
|
|
|
17
|
|
|
|
26
|
|
|
|
25
|
|
|
|
29
|
|
|
|
31
|
|
Ceded
|
|
|
(140
|
)
|
|
|
(307
|
)
|
|
|
(136
|
)
|
|
|
(454
|
)
|
|
|
(371
|
)
|
|
|
(601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
|
|
$
|
154
|
|
|
$
|
169
|
|
|
$
|
179
|
|
|
$
|
182
|
|
|
$
|
180
|
|
|
$
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
FC-12
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 3. MARKETABLE SECURITIES
At acquisition, our marketable securities are classified as available-for-sale or
held-to-maturity. Available-for-sale securities are recorded at fair value with unrealized gains
and losses excluded from income and reported, net of tax, as a separate component of
Accumulated
other comprehensive income
in
Shareholders interest/equity
. Held-to-maturity securities are
recorded at amortized cost. The basis of cost used in determining realized gains and losses is
specific identification.
The fair value of substantially all securities was determined based on quoted market prices.
For securities for which quoted market prices were not available, the estimate of fair value was
based on similar types of securities traded in the market.
Marketable securities at December 31 were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
|
$
|
632
|
|
|
$
|
1
|
|
|
$
|
0
|
|
|
$
|
633
|
|
Corporate debt
|
|
|
124
|
|
|
|
2
|
|
|
|
1
|
|
|
|
125
|
|
Mortgage-backed
|
|
|
324
|
|
|
|
2
|
|
|
|
1
|
|
|
|
325
|
|
Equity
|
|
|
99
|
|
|
|
2
|
|
|
|
0
|
|
|
|
101
|
|
Government-sponsored enterprises
|
|
|
1,944
|
|
|
|
4
|
|
|
|
|
|
|
|
1,948
|
|
Government non U.S.
|
|
|
15
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15
|
|
Held-to-maturity securities
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
3,146
|
|
|
$
|
11
|
|
|
$
|
2
|
|
|
$
|
3,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
|
$
|
3,710
|
|
|
$
|
4
|
|
|
$
|
1
|
|
|
$
|
3,713
|
|
Corporate debt
|
|
|
1,097
|
|
|
|
1
|
|
|
|
2
|
|
|
|
1,096
|
|
Mortgage-backed
|
|
|
263
|
|
|
|
1
|
|
|
|
4
|
|
|
|
260
|
|
Equity
|
|
|
60
|
|
|
|
36
|
|
|
|
1
|
|
|
|
95
|
|
Government-sponsored enterprises
|
|
|
4,968
|
|
|
|
5
|
|
|
|
0
|
|
|
|
4,973
|
|
Government non U.S.
|
|
|
15
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15
|
|
Municipal
|
|
|
1
|
|
|
|
|
|
|
|
0
|
|
|
|
1
|
|
Held-to-maturity securities
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
10,122
|
|
|
$
|
47
|
|
|
$
|
8
|
|
|
$
|
10,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FC-13
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 3. MARKETABLE SECURITIES Continued
The amortized cost and fair value of investments in available-for-sale securities and
held-to-maturity securities at December 31, by contractual maturity, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
Available-for-Sale
|
|
|
Held-to-Maturity
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Due in one year or less
|
|
$
|
2,384
|
|
|
$
|
2,387
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Due after one year through five years
|
|
|
228
|
|
|
|
229
|
|
|
|
3
|
|
|
|
3
|
|
Due after five years through ten years
|
|
|
51
|
|
|
|
52
|
|
|
|
2
|
|
|
|
2
|
|
Due after ten years
|
|
|
52
|
|
|
|
53
|
|
|
|
2
|
|
|
|
2
|
|
Mortgage-backed securities
|
|
|
324
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
99
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,138
|
|
|
$
|
3,147
|
|
|
$
|
8
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the above contractual maturities are investments on deposit with regulatory
authorities (at amortized cost), as required by law, totaling $15 million and $14 million at
December 31, 2007 and 2006, respectively.
Proceeds from maturities of marketable securities were $7,900 million, $9,157 million, and
$2,381 million in 2007, 2006 and 2005, respectively. Proceeds from sales of available-for-sale
securities were $8,074 million, $4,434 million and $691 million in 2007, 2006 and 2005,
respectively. Gross realized gains were $45 million, $19 million and $7 million in 2007, 2006 and
2005, respectively. Gross realized losses were $5 million, $4 million and $3 million in 2007, 2006
and 2005, respectively.
The fair value of investments in an unrealized loss position at December 31, 2007, aggregated
by investment category and length of time that the investments have been in a continuous loss
position, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
|
$
|
10
|
|
|
$
|
0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10
|
|
|
$
|
0
|
|
Corporate debt
|
|
|
12
|
|
|
|
0
|
|
|
|
15
|
|
|
|
1
|
|
|
|
27
|
|
|
|
1
|
|
Mortgage-backed
|
|
|
9
|
|
|
|
0
|
|
|
|
100
|
|
|
|
1
|
|
|
|
109
|
|
|
|
1
|
|
Government non U.S.
|
|
|
2
|
|
|
|
0
|
|
|
|
1
|
|
|
|
0
|
|
|
|
3
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale
securities
|
|
$
|
33
|
|
|
$
|
0
|
|
|
$
|
116
|
|
|
$
|
2
|
|
|
$
|
149
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We utilize a systematic process to evaluate whether unrealized losses related to investments
in debt and equity securities are other than temporary in nature. Factors considered in
determining whether a loss is other than temporary include the length of time and extent to which
the fair value has been below cost, the financial condition and near-term prospects of the issuer
and our ability and intent to hold the investment for a period of time sufficient to allow for any
anticipated recovery. If losses are determined to be other than temporary, the investment carrying
amount is considered impaired and adjusted downward to the revised fair value. During 2007, there
were no impairments recorded.
FC-14
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 4. FINANCE RECEIVABLES
Net finance receivables at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
Retail
|
|
$
|
74,203
|
|
|
$
|
71,347
|
|
Wholesale
|
|
|
34,808
|
|
|
|
35,227
|
|
Other
|
|
|
3,394
|
|
|
|
3,815
|
|
|
|
|
|
|
|
|
Total finance receivables, net of unearned
income (a)(b)
|
|
|
112,405
|
|
|
|
110,389
|
|
Less: Allowance for credit losses
|
|
|
(937
|
)
|
|
|
(984
|
)
|
|
|
|
|
|
|
|
Finance receivables, net
|
|
$
|
111,468
|
|
|
$
|
109,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance receivables subject to fair value (c)
|
|
$
|
107,170
|
|
|
$
|
104,873
|
|
Fair value
|
|
|
105,989
|
|
|
|
103,614
|
|
|
|
|
(a)
|
|
At December 31, 2007 and 2006, includes $1.8 billion and $1.9 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, 2007 and 2006, includes finance receivables of $67.2 billion and
$56.5 billion, respectively, that have been sold for legal purposes in securitizations
that do not satisfy the requirements for accounting sale treatment. These receivables
are available only for payment of the debt or other obligations issued or arising in
the securitization transactions; they are not available to pay our other obligations
or the claims of our other creditors.
|
|
(c)
|
|
At December 31, 2007 and 2006, excludes $4.3 billion and $4.5 billion,
respectively, of certain receivables (primarily direct financing leases) that are not
subject to fair value disclosure requirements.
|
The fair value of finance receivables is generally calculated by discounting future cash flows
using an estimated discount rate that reflects the current credit, interest rate and prepayment
risks associated with similar types of instruments. For finance receivables with short maturities
(generally three months or less), the book value approximates fair value.
At December 31, 2007, finance receivables included $1.7 billion owed by the three customers
with the largest receivables balances.
Contractual maturities of total finance receivables outstanding at December 31, 2007, net of
unearned income, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in Year Ending December 31,
|
|
|
Due After
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
27,274
|
|
|
$
|
19,928
|
|
|
$
|
13,991
|
|
|
$
|
13,010
|
|
|
$
|
74,203
|
|
Wholesale
|
|
|
34,464
|
|
|
|
344
|
|
|
|
0
|
|
|
|
0
|
|
|
|
34,808
|
|
Other
|
|
|
1,959
|
|
|
|
282
|
|
|
|
229
|
|
|
|
924
|
|
|
|
3,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
63,697
|
|
|
$
|
20,554
|
|
|
$
|
14,220
|
|
|
$
|
13,934
|
|
|
$
|
112,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment may cause actual maturities to differ from contractual maturities. The above
table, therefore, is not to be regarded as a forecast of future cash collections.
FC-15
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 4. FINANCE RECEIVABLES Continued
The aggregate finance receivables balances related to accounts past due more than 60 days at
December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
Retail
|
|
$
|
433
|
|
|
$
|
405
|
|
Wholesale
|
|
|
168
|
|
|
|
140
|
|
Other
|
|
|
22
|
|
|
|
8
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
623
|
|
|
$
|
553
|
|
|
|
|
|
|
|
|
Investments in direct financing leases, which are included in retail finance receivables, were
as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
Minimum lease rentals to be received,
including origination costs
|
|
$
|
2,367
|
|
|
$
|
2,577
|
|
Estimated residual values
|
|
|
2,353
|
|
|
|
2,384
|
|
Less: Unearned income
|
|
|
(417
|
)
|
|
|
(425
|
)
|
Less: Allowance for credit losses
|
|
|
(41
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
Net investment in direct financing leases
|
|
$
|
4,262
|
|
|
$
|
4,490
|
|
|
|
|
|
|
|
|
Future minimum rentals from direct financing leases for each of the five succeeding years are
as follows (in millions): 2008 $972; 2009 $665; 2010 $444; 2011 $212; 2012 $18.
FC-16
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 at December 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
Vehicles, at cost, including initial direct costs
|
|
$
|
38,000
|
|
|
$
|
33,012
|
|
Less: Accumulated depreciation
|
|
|
(8,184
|
)
|
|
|
(6,947
|
)
|
Less: Allowance for credit losses
|
|
|
(153
|
)
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
Net investment in operating leases (a)
|
|
$
|
29,663
|
|
|
$
|
25,939
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
At December 31, 2007 and 2006, includes net investment in operating leases
of $18.9 billion and $15.2 billion, respectively, that have been included
in securitizations that do not satisfy the requirements for accounting
sale treatment. These net investment in operating leases are available only for
payment of the debt or other obligations issued or arising in the securitization
transactions; they are not available to pay our other obligations or the claims
of our other creditors.
|
Future minimum rentals on operating leases are as follows (in millions): 2008 $5,029; 2009
$3,511; 2010 $1,908; 2011 $576; 2012 $18.
NOTE 6. ALLOWANCE FOR CREDIT LOSSES
Following is an analysis of the allowance for credit losses related to finance receivables and
operating leases for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in millions)
|
|
Balance, beginning of year
|
|
$
|
1,110
|
|
|
$
|
1,586
|
|
|
$
|
2,434
|
|
Provision for credit losses
|
|
|
588
|
|
|
|
95
|
|
|
|
166
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs before recoveries
|
|
|
1,102
|
|
|
|
993
|
|
|
|
1,183
|
|
Recoveries
|
|
|
(470
|
)
|
|
|
(470
|
)
|
|
|
(477
|
)
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
632
|
|
|
|
523
|
|
|
|
706
|
|
Other changes, principally
amounts related to
translation adjustments and
finance receivables sold
|
|
|
(24
|
)
|
|
|
48
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
Net deductions
|
|
|
608
|
|
|
|
571
|
|
|
|
1,014
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
1,090
|
|
|
$
|
1,110
|
|
|
$
|
1,586
|
|
|
|
|
|
|
|
|
|
|
|
FC-17
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 7. SALES OF RECEIVABLES
Servicing Portfolio
We retain servicing rights for receivables sold in off-balance sheet securitization and
whole-loan sale transactions. The servicing portfolio is summarized in the following table for the
years ended December 31:
|
|
|
|
|
|
|
Retail
|
|
|
|
(in millions)
|
|
Servicing portfolio at December 31, 2005
|
|
$
|
20,921
|
|
2006 activity
|
|
|
|
|
Receivables sales
|
|
|
5,531
|
|
Collections and re-acquired receivables
|
|
|
(12,218
|
)
|
|
|
|
|
Servicing portfolio at December 31, 2006
|
|
|
14,234
|
|
2007 activity
|
|
|
|
|
Receivables sales
|
|
|
815
|
|
Collections and re-acquired receivables
|
|
|
(8,151
|
)
|
|
|
|
|
Servicing portfolio at December 31, 2007
|
|
$
|
6,898
|
|
|
|
|
|
Retained Interest in Securitized Assets
Components of retained interest in off-balance sheet securitized assets at December 31
included the following:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
Residual interest in securitization transactions
|
|
$
|
466
|
|
|
$
|
709
|
|
Restricted cash held for benefit of securitization investors
|
|
|
135
|
|
|
|
204
|
|
Subordinated securities
|
|
|
52
|
|
|
|
77
|
|
|
|
|
|
|
|
|
Retained interest in securitized assets
|
|
$
|
653
|
|
|
$
|
990
|
|
|
|
|
|
|
|
|
Investments in subordinated securities and restricted cash are senior to the residual interest
in securitization transactions. Retained interests are recorded at fair value. In determining the
fair value of restricted cash held for investors and residual interest in securitization
transactions, we discount the projected cash flows retained at the transaction discount rates.
FC-18
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 7. SALES OF RECEIVABLES Continued
Investment and Other Income
The following table summarizes the activity related to off-balance sheet sales of receivables
reported in
Investment and other income related to sales of receivables
for the years ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in millions)
|
|
Income on residual interest
|
|
$
|
157
|
|
|
$
|
137
|
|
|
$
|
468
|
|
Servicing fees
|
|
|
122
|
|
|
|
198
|
|
|
|
376
|
|
Interest income on retained interests
|
|
|
34
|
|
|
|
32
|
|
|
|
327
|
|
Net gain on sale of receivables
|
|
|
5
|
|
|
|
88
|
|
|
|
87
|
|
Other
|
|
|
73
|
|
|
|
213
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income related to sales of receivables
|
|
$
|
391
|
|
|
$
|
668
|
|
|
$
|
1,513
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007, we utilized certain point-of-sale assumptions to value
the residual interest in our retail transactions, which included a discount rate of 12.5%,
prepayment speeds of 1.5% (which represents expected payments earlier than scheduled maturity
dates) and net credit losses of 1.3% over the life of sold receivables. The weighted-average life
of the underlying assets was 56.1 months. For the year ended December 31, 2006, we utilized
certain point-of-sale assumptions to value the residual interest in our retail transactions, which
included a discount rate of 11.0%, prepayment speeds of 0.9% to 1.5% (which represent expected
payments earlier than scheduled maturity dates) and net credit losses of 0.1% to 2.3% over the life
of sold receivables. The weighted-average life of the underlying assets was 45.8 months.
Cash Flow
The following table summarizes the cash flow movements between the transferees and us in our
off-balance sheet sales of receivables for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in millions)
|
|
Proceeds from sales of receivables and retained interests
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of retail receivables
|
|
$
|
697
|
|
|
$
|
4,863
|
|
|
$
|
15,549
|
|
Proceeds from interest in sold wholesale receivables
|
|
|
|
|
|
|
|
|
|
|
3,739
|
|
Proceeds from revolving-period securitizations
|
|
|
|
|
|
|
217
|
|
|
|
1,349
|
|
Proceeds from sale of retained notes retail
|
|
|
|
|
|
|
40
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
697
|
|
|
$
|
5,120
|
|
|
$
|
20,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows related to net change in retained interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest in sold retail receivables
|
|
$
|
401
|
|
|
$
|
672
|
|
|
$
|
708
|
|
Interest in sold wholesale receivables
|
|
|
|
|
|
|
|
|
|
|
2,684
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
401
|
|
|
$
|
672
|
|
|
$
|
3,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fees
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
122
|
|
|
$
|
198
|
|
|
$
|
260
|
|
Wholesale
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
122
|
|
|
$
|
198
|
|
|
$
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other cash flows received on retained interests (which
are
reflected in securitization income)
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
147
|
|
|
$
|
115
|
|
|
$
|
276
|
|
Wholesale
|
|
|
|
|
|
|
|
|
|
|
507
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
147
|
|
|
$
|
115
|
|
|
$
|
783
|
|
|
|
|
|
|
|
|
|
|
|
FC-19
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 7. SALES OF RECEIVABLES Continued
During the fourth quarter of 2005, we consolidated our off-balance sheet wholesale
securitization program as a result of certain changes authorized in accordance with the transaction
documents. The accounting consolidation did not have an impact on our earnings, credit facilities,
unsecured debt programs or other securitization programs. This transaction was primarily non-cash
and increased receivables by $17.9 billion and debt by $15.8 billion upon consolidation.
We repurchased $36 million, $36 million, and $43 million of receivables in 2007, 2006 and
2005, respectively, relating to off-balance sheet sales of receivables due to receivable contract
modifications or breach of initial eligibility criteria representations.
Other Disclosures
The following table summarizes key assumptions used at December 31, 2007 in estimating cash
flows from off-balance sheet sales of retail receivables and the corresponding sensitivity of the
current fair values to 10% and 20% adverse changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
Impact on Fair Value
|
|
|
|
Assumption
|
|
|
Based on Adverse Change
|
|
|
|
Percentage
|
|
|
10% Change
|
|
|
20% Change
|
|
|
|
(annual rate)
|
|
|
(in millions)
|
|
Cash flow discount rate
|
|
|
12.5%
|
|
|
$
|
(5
|
)
|
|
$
|
(9
|
)
|
Estimated net credit loss rate
|
|
|
0.3% - 2.6%
|
|
|
|
(4
|
)
|
|
|
(9
|
)
|
Prepayment speed
|
|
|
0.8% - 1.5%
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
The effect of a variation in a particular assumption on the fair value of residual interest in
securitization transactions was calculated without changing any other assumptions and changes in
one factor may result in changes in another.
Outstanding delinquencies over 30 days related to the off-balance sheet securitized portfolio
were $180 million and $208 million at December 31, 2007 and 2006, respectively. Credit losses, net
of recoveries, were $65 million and $84 million for the years ended December 31, 2007 and 2006,
respectively. Expected static pool credit losses related to outstanding securitized retail
receivables were 1.1% at December 31, 2007. To calculate the static pool credit losses, actual and
projected future credit losses are added together and divided by the original balance of each pool
of assets.
On-Balance Sheet Securitizations
At December 31, 2007 and 2006, finance receivables of $67.2 billion and $56.5 billion,
respectively, have been sold for legal purposes in securitizations that do not satisfy the
requirements for accounting sale treatment. In addition, at December 31, 2007 and 2006, net
investment in operating leases of $18.9 billion and $15.2 billion, respectively, have been included
in securitizations that do not satisfy the requirements for accounting sale treatment. These
receivables and net investment in operating leases are available only for payment of the debt or
other obligations issued or arising in the securitization transactions. At December 31, 2007 and
2006, associated debt of $69.2 billion and $59.6 billion, respectively, is reported on our balance
sheet for financial statement reporting purposes. This debt includes long-term and short-term
asset-backed debt that is payable only out of collections on the underlying securitized assets and
related enhancements. The cash balances to be used only to support the on-balance sheet
securitizations at December 31, 2007 and 2006, were approximately $4.7 billion and $3.7 billion,
respectively. On-balance sheet securitizations generally use VIEs of which we are the primary
beneficiary.
FC-20
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 8. VARIABLE INTEREST ENTITIES
We consolidate VIEs in which we are the primary beneficiary. We use SPEs that are considered
VIEs for most of our on-balance sheet securitizations. The liabilities recognized as a result of
consolidating these VIEs do not represent additional claims on our general assets; rather, they
represent claims against the specific securitized assets. Conversely, these specific securitized
assets do not represent additional assets that could be used to satisfy claims against our general
assets. Consolidated assets related to these securitizations of $82.4 billion and $69.5 billion
are included in our balance sheet at December 31, 2007 and 2006, respectively. These consolidated
assets include $4.6 billion and $3.7 billion of cash and cash equivalents and $77.8 billion and
$65.8 billion of finance receivables and beneficial interests in net investment in operating leases
at December 31, 2007 and 2006, respectively.
We have investments in other entities deemed to be VIEs of which we are not the primary
beneficiary. The risks and rewards associated with our interests in these entities are based
primarily on ownership percentages. Therefore, we do not consolidate these entities and we account
for them as equity method investments. Our maximum exposure (approximately $76 million and $182
million at December 31, 2007 and 2006, respectively) to any potential losses associated with these
VIEs is limited to our equity investments and, where applicable, receivables due from the VIEs.
In addition, we sell finance receivables to bank-sponsored asset-backed commercial paper
issuers that are SPEs of the sponsor bank; these SPEs are not consolidated by us. All of these
sales constitute sales for legal purposes, but some of the sales do not satisfy the requirements
for accounting sale treatment. The outstanding balance of these finance receivables was
approximately $3.4 billion and $5.2 billion at December 31, 2007 and 2006, respectively.
NOTE 9. OTHER ASSETS AND OTHER LIABILITIES AND DEFERRED INCOME
Other assets at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
Accrued interest, rents and other
non-finance receivables
|
|
$
|
1,407
|
|
|
$
|
1,676
|
|
Deferred charges including unamortized dealer
commissions
|
|
|
818
|
|
|
|
918
|
|
Investment in used vehicles held for resale,
at net realizable value
|
|
|
1,238
|
|
|
|
692
|
|
Prepaid reinsurance premiums and other
reinsurance receivables
|
|
|
526
|
|
|
|
700
|
|
Collateral held for resale, at net realizable value
|
|
|
705
|
|
|
|
556
|
|
Property and equipment, net of accumulated
depreciation of $357 in 2007 and $385 in 2006
|
|
|
255
|
|
|
|
264
|
|
Other
|
|
|
1,281
|
|
|
|
946
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
6,230
|
|
|
$
|
5,752
|
|
|
|
|
|
|
|
|
Other liabilities and deferred income at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
Interest payable
|
|
$
|
1,601
|
|
|
$
|
1,463
|
|
Deferred income
|
|
|
709
|
|
|
|
517
|
|
Unearned insurance premiums
|
|
|
616
|
|
|
|
800
|
|
Other
|
|
|
2,388
|
|
|
|
808
|
|
|
|
|
|
|
|
|
Total other liabilities and deferred income
|
|
$
|
5,314
|
|
|
$
|
3,588
|
|
|
|
|
|
|
|
|
FC-21
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 10. DEBT
Debt
At December 31, debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rates
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Contractual (a)
|
|
|
Average (b)
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed commercial paper (c)
|
|
|
5.3
|
%
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
$
|
13,518
|
|
|
$
|
16,480
|
|
Other asset-backed short-term debt (c)
|
|
|
5.5
|
%
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
6,196
|
|
|
|
1,197
|
|
Ford Interest Advantage (d)
|
|
|
5.6
|
%
|
|
|
6.1
|
%
|
|
|
|
|
|
|
|
|
|
|
5,408
|
|
|
|
5,611
|
|
Unsecured commercial paper
|
|
|
7.5
|
%
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
526
|
|
|
|
400
|
|
Other short-term debt (e)
|
|
|
6.7
|
%
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
1,446
|
|
|
|
2,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt
|
|
|
5.5
|
%
|
|
|
5.6
|
%
|
|
|
5.7
|
%
|
|
|
5.8
|
%
|
|
|
27,094
|
|
|
|
25,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior indebtedness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,600
|
|
|
|
17,256
|
|
Notes payable after one year (f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,296
|
|
|
|
54,874
|
|
Unamortized discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
(103
|
)
|
Asset-backed debt (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,121
|
|
|
|
17,330
|
|
Notes payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,386
|
|
|
|
24,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt (g)
|
|
|
6.5
|
%
|
|
|
6.1
|
%
|
|
|
6.3
|
%
|
|
|
5.9
|
%
|
|
|
112,317
|
|
|
|
113,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
6.3
|
%
|
|
|
6.0
|
%
|
|
|
6.2
|
%
|
|
|
5.9
|
%
|
|
$
|
139,411
|
|
|
$
|
139,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value of debt including
accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net short-term debt subject to fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,182
|
|
|
$
|
25,900
|
|
Short-term debt fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,182
|
|
|
|
25,900
|
|
Net long-term debt subject to fair value
(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,781
|
|
|
|
115,166
|
|
Long-term debt fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,912
|
|
|
|
115,506
|
|
Total estimated fair value of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,094
|
|
|
|
141,406
|
|
Interest rate characteristics of debt
payable after one year
(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
47,108
|
|
|
$
|
49,243
|
|
Variable interest rates (generally based
on LIBOR or other short-term rates)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,488
|
|
|
|
30,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
79,596
|
|
|
$
|
79,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
|
(d)
|
|
The Ford Interest Advantage program consists of our floating rate demand notes.
|
|
(e)
|
|
Includes $58 million and $27 million with affiliated companies at December 31, 2007 and 2006, respectively.
|
|
(f)
|
|
Includes $158 million and $150 million with affiliated companies at December 31, 2007 and 2006, respectively.
|
|
(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)
|
|
Represents the par value of debt at December 31, 2007 and 2006, respectively.
|
|
(i)
|
|
Excludes the effect of interest rate swap agreements.
|
FC-22
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
Continued
NOTE 10. DEBT Continued
Debt consists of short-term and long-term unsecured and asset-backed debt, placed directly by
us or through securities dealers or underwriters, and bank borrowings. We consider any debt with
an original maturity of 12 months or less to be short-term debt. We have commercial paper programs
in the United States, Europe, and other international markets, and asset-backed commercial paper
programs in the United States, with sales mostly to qualified institutional investors. We also
obtain short-term funding from the sale of demand notes to retail investors through our floating
rate demand notes program. Some of our asset-backed securitization programs 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 debt securities in the
United States and international capital markets. Long-term debt is debt with an original maturity
of more than 12 months and can be either unsecured or asset-backed debt. 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.
The nominal interest rate for our floating rate demand notes issued and offered under our Ford
Interest Advantage program ranged from 5.1% to 5.4% as of December 31, 2007 depending on the amount
invested.
Our overall weighted-average effective interest rate (borrowing cost), including the effect of
interest rate swap agreements, was 6.1% and 5.5% for full year 2007 and 2006, respectively.
The average of the remaining maturities of our secured and unsecured commercial paper was 39
days at December 31, 2007 and 51 days at December 31, 2006 for our United States and Europe
programs. Short-term and long-term debt matures at various dates through 2078 (about $1.4 billion
matures between 2031 and 2078). Maturities are as follows (in millions): 2008 $59,815 ($27,094
short-term and $32,721 long-term debt); 2009 $28,292; 2010 $15,874; 2011 $16,576; 2012
$9,055; thereafter $9,799. 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.
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. For short-term debt, the book value approximates fair value due to
the short maturities of these instruments.
FC-23
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 10. DEBT Continued
Credit Facilities
At December 31, 2007, we and our subsidiaries, including FCE, had $3 billion of contractually
committed unsecured credit facilities with financial institutions, of which $2.1 billion were
available for use. Of the lines available for use, 56% (or about $1.1 billion) are committed
through June 30, 2009, including 19% (or about $400 million) which are committed through December
31, 2011. Of the $3 billion, $500 million constitute Ford Credit bank lines (of which about $200
million are worldwide) and $2.5 billion are FCE bank lines (of which $2.4 billion are worldwide).
Our worldwide credit facilities may be used, at our option, by any of our direct or indirect
majority owned subsidiaries. Similarly, the FCE worldwide credit facilities may be used, at FCEs
option, by any of FCEs direct or indirect, majority owned subsidiaries. We or FCE, as the case
may be, will guarantee any such borrowings. All of the worldwide credit facilities are free of
material adverse change clauses, restrictive financial covenants (for example, debt-to-equity
limitations and minimum net worth requirements) and credit rating triggers that could limit our
ability to obtain funding.
In addition, at December 31, 2007, banks provided $17.2 billion of contractually committed
liquidity facilities to support our two on-balance sheet asset-backed commercial paper programs;
$16.9 billion supported our FCAR program and $300 million supported our Motown Notes
SM
wholesale securitization program (Motown Notes). Of the contractually committed liquidity
facilities, 48% (or about $8 billion) are committed through June 30, 2012, and the remainder are
committed for a shorter period of time. Utilization of each of these facilities is subject to
conditions specific to each 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, 2007, $16.7 billion of FCARs bank liquidity
facilities were available to support FCARs asset-backed commercial paper, subordinated debt or
FCARs purchase of our asset-backed securities, and the remaining $200 million of FCARs bank
liquidity facilities were available to support FCARs purchase of our asset-backed securities. The
Motown Notes program must be supported by liquidity facilities equal to at least 5% of its
outstanding balance. The Motown Notes program bank liquidity facilities are available to support
the issuance of Motown Notes, but these facilities cannot be accessed directly to fund the purchase
of our wholesale receivables. We are not presently issuing Motown Notes and do not intend to use
this program in the foreseeable future as there is presently a lack of investor demand for
extendible commercial paper. At December 31, 2007, the outstanding balances were $13.7 billion for
the FCAR program and $0 for the Motown Notes program.
FC-24
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 10. DEBT 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 or wholesale assets for proceeds of up to $30.8 billion at December 31, 2007 ($18.1 billion
retail and $12.7 billion wholesale) of which $10.0 billion are commitments to FCE. These committed
liquidity programs have varying maturity dates, with $21.2 billion having maturities within the
next twelve months (of which $3.4 billion relates to FCE commitments), and the balance having
maturities between February 2009 and September 2011. Our ability to obtain funding under these
programs is subject to having a sufficient amount of assets eligible for these programs. At
December 31, 2007, $17.1 billion of these commitments were in use. These programs are extremely
liquid funding sources as we are able to obtain funding from available capacity generally within
two days. These programs are free of material adverse change clauses, restrictive financial
covenants (for example, debt-to-equity limitations and minimum net worth requirements) and credit
rating triggers that could limit our ability to obtain funding. However, the unused portion of
these commitments may be terminated if the performance of the underlying assets deteriorates beyond
specified levels. Based on our experience and knowledge as servicer of the related assets, we do
not expect any of these programs to be terminated due to such events.
In addition, we have a committed liquidity program for the purchase of up to $6 billion of
unrated asset-backed securities of which $4 billion is committed through 2009, that at our option
can be supported with various retail, wholesale, or lease assets. Our ability to obtain funding
under this program is subject to having a sufficient amount of assets available to issue the
securities. This program is also free of material adverse change clauses, restrictive financial
covenants (for example, debt-to-equity limitations and minimum net worth requirements), and credit
rating triggers that could limit our ability to obtain funding. At December 31, 2007, we had $3.9
billion of outstanding funding in this program.
FC-25
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 income taxes
for the years
ended December 31 was estimated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in millions)
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
United States federal
|
|
$
|
1,402
|
|
|
$
|
2,822
|
|
|
$
|
|
|
Foreign
|
|
|
145
|
|
|
|
289
|
|
|
|
206
|
|
State and local
|
|
|
115
|
|
|
|
(21
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
1,662
|
|
|
|
3,090
|
|
|
|
182
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
United States federal
|
|
|
(1,095
|
)
|
|
|
(2,412
|
)
|
|
|
626
|
|
Foreign
|
|
|
(48
|
)
|
|
|
(24
|
)
|
|
|
161
|
|
State and local
|
|
|
(73
|
)
|
|
|
16
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(1,216
|
)
|
|
|
(2,420
|
)
|
|
|
877
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
446
|
|
|
$
|
670
|
|
|
$
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the
Provision for income taxes
with the United States statutory tax rate
as a percentage of income before income taxes, excluding equity in net income of affiliated
companies, minority interest in net income of a joint venture, and discontinued operations, is
shown below for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Effect of (in percentage points):
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local income taxes
|
|
|
1.8
|
|
|
|
(0.2
|
)
|
|
|
1.4
|
|
Investment income not subject to tax or
subject to tax at reduced rates
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Other
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
36.7
|
%
|
|
|
34.3
|
%
|
|
|
36.2
|
%
|
|
|
|
|
|
|
|
|
|
|
FC-26
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:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
$
|
1,640
|
|
|
$
|
1,681
|
|
Net operating losses and foreign tax credits
|
|
|
514
|
|
|
|
543
|
|
Alternative minimum tax
|
|
|
311
|
|
|
|
301
|
|
Employee benefit plans
|
|
|
167
|
|
|
|
278
|
|
Other
|
|
|
307
|
|
|
|
426
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
2,939
|
|
|
|
3,229
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Leasing transactions
|
|
|
5,694
|
|
|
|
7,447
|
|
Finance receivables
|
|
|
866
|
|
|
|
824
|
|
Sales of receivables
|
|
|
714
|
|
|
|
714
|
|
Other
|
|
|
883
|
|
|
|
866
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
8,157
|
|
|
|
9,851
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
5,218
|
|
|
$
|
6,622
|
|
|
|
|
|
|
|
|
We have an intercompany tax sharing agreement with Ford. Under this agreement, 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 paid to Ford under this agreement is included in
Interest expense
.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
Number 48,
Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109
,
Accounting for Income Taxes
(FIN 48). FIN 48 addresses the determination of whether tax benefits
claimed or expected to be claimed on a tax return should be recorded in the financial statements.
Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. The tax benefits recognized in the financial
statements from such a position are measured based on the largest benefit that has a greater than
fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance
on de-recognition, classification, interest and penalties on income taxes, and accounting in
interim periods, and also requires increased disclosures.
FC-27
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 11. INCOME TAXES Continued
We adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of
FIN 48, we recorded a $51 million decrease to our retained earnings. The amount of unrecognized
tax benefits at January 1, 2007 is $363 million. A reconciliation of the beginning and ending
amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
2007
|
|
|
|
(in millions)
|
|
Balance at January 1, 2007
|
|
$
|
363
|
|
Increase tax positions in prior periods
|
|
|
55
|
|
Increase tax positions in current periods
|
|
|
17
|
|
Decrease tax positions in prior periods
|
|
|
|
|
Settlements
|
|
|
0
|
|
Lapse of Statute of Limitations
|
|
|
(14
|
)
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
421
|
|
|
|
|
|
The amount of unrecognized tax benefits at January 1, 2007 and December 31, 2007 that would
affect the effective tax rate if recognized was $107 million and $109 million, respectively.
We expect the unrecognized tax benefits balance to decrease by approximately $150 million over
the next 12 months as a result of filing amended state income tax returns reflecting the impact of
previously settled U.S. federal income tax audits and paying the associated liability.
We have settled our U.S. federal income tax deficiencies related to tax years prior to 2004 in
accordance with our intercompany tax sharing agreement with Ford. The consolidated return is
currently under examination for the 2004 and 2005 tax years.
Examinations by tax authorities have been completed through 1999 in Germany, 2001 in Canada,
and 2004 in the United Kingdom.
Effective with the adoption of FIN 48, we elected to 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 the
Provision for income taxes
. During 2007, we recorded
approximately $8 million in interest and penalties in our consolidated statement of income. The
liability recorded for the payment of interest as of January 1, 2007 and December 31, 2007, was $8
million and $11 million, respectively.
FC-28
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to interest rate changes and foreign currency exchange rate fluctuations in the
normal course of business. Interest rate and currency exposures are monitored and managed by us as
an integral part of our overall risk management program, which recognizes the unpredictability of
financial markets and seeks to reduce potential adverse effects on our operating results. Risk is
reduced in two ways: (1) through the use of funding instruments that have interest and maturity
profiles similar to the assets they are funding, and (2) through the use of interest rate and
foreign exchange derivatives. Interest rate swaps are used to manage the effects of interest rate
fluctuations. Foreign currency exchange agreements, including forward contracts and swaps, are
used to manage foreign exchange exposure. We adhere to a risk management policy that is reviewed on
a regular basis by our management. We do not engage in any speculative activities in the
derivative markets.
The use of derivatives to manage market risk results in counterparty risk, the risk of a
counterparty defaulting on a derivative contract. We establish exposure limits for each
counterparty to minimize this risk and provide counterparty diversification. Substantially all of
our counterparty 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,
2007 is approximately $3 billion, and represents the maximum loss that would be recognized at
December 31, 2007 if all counterparties failed to perform as contracted. None of our derivative
assets have been impaired based on counterparty risk.
Nature of Exposure
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 substantially all of 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.
|
Interest Rate Risk
Re-pricing risk arises when assets and the related debt have different re-pricing periods and,
consequently, respond differently to changes in interest rates. We use interest rate swaps 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.
|
FC-29
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES Continued
Net Investment in Foreign Operations
We have used foreign currency forward exchange contracts and options 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 derivatives hedging our net investment in
foreign operations.
Hedge Accounting Designations
In 2007, we did not apply designated hedge accounting to any of our derivative instruments.
Some derivatives did not qualify for hedge accounting; for others, we elected not to apply hedge
accounting. For derivatives not designated as hedging instruments, the mark to fair value is
reported currently through earnings. Regardless of hedge accounting treatment, we only enter into
transactions we believe will be highly effective at offsetting the underlying risk.
In prior periods presented, we elected to apply hedge accounting to certain derivatives.
Derivatives that received designated hedge accounting treatment were documented and the
relationships were evaluated for effectiveness at the time they were designated as well as
throughout the hedge period.
Fair Value Hedges
We use certain derivatives to reduce the risk of changes in the fair value of liabilities.
For example, we may issue an interest rate swap in which we receive a fixed rate of interest and
paid a variable rate of interest to substantially offset the change in fair value of a fixed-rate
borrowing. If the hedge relationship is deemed to be highly effective, we record the changes in
the fair value hedged item related to the risk being hedged along with the change in fair value of
the related derivative in
Other income, net
.
We have designated certain receive-fixed, pay-float interest rate swaps as hedges of existing
fixed-rate debt under the long-haul method of assessing effectiveness. The risk being hedged was
the risk of changes in the fair value of the hedged item attributable to changes in the benchmark
interest rate. We used the dollar-offset method to assess hedge effectiveness. Hedge
ineffectiveness, recorded directly in earnings, was the difference between the change in fair value
of the entire derivative instrument and the change in fair value of the hedged item attributable to
changes in the benchmark interest rate. The notional balances for these highly effective interest
rate swaps were $0, about $1 billion, and $2 billion at December 31, 2007, 2006 and 2005,
respectively. Other interest rate swaps met the specific criteria to assume no ineffectiveness in
the hedge relationship. These interest rate swaps had notional balances of $0, $0, and about $4
billion at December 31, 2007, 2006 and 2005, respectively.
Cash Flow Hedges
We have designated certain receive-float, pay-fixed interest rate swaps as hedges of existing
floating rate debt. The risk being hedged was the risk of changes in the cash flows of the hedged
item attributable to changes in the benchmark interest rate. We had no receive-float, pay-fixed
interest rates swaps classified as cash flow hedges at December 31, 2007, 2006 and 2005,
respectively.
FC-30
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES Continued
For derivatives designated as cash flow hedges, we recorded the changes in their fair value,
net of the tax effect, in
Accumulated other comprehensive income
, a component of
Shareholders
interest/equity
. We then reclassified these amounts into earnings in the same period(s) in which
the hedged transaction affects earnings. As of December 31, 2007, the remaining balance in
Accumulated other comprehensive income
related to cash flow hedges was $0. We do not expect to
reclassify any gains or losses from
Shareholders interest/equity
to
Net income
during the next
twelve months.
Net Investment Hedges
We have used foreign currency forwards and options to hedge the net assets of certain foreign
entities to offset the translation and economic exposures related to our investment in these
entities. We had no foreign currency forwards or options classified as net investment hedges at
December 31, 2007, 2006 and 2005.
Derivatives not Designated as Hedging Instruments
In 2007, we did not apply hedge accounting to our derivatives. Some derivatives did not
qualify for hedge accounting; for others, we elected not to apply hedge accounting. We report
changes in the fair value of these derivatives through
Other income, net
. The earnings impact
primarily relates to interest rate swaps, which are included in evaluating our overall risk
management objective, and revaluation of foreign currency derivatives, which are substantially
offset by the revaluation of foreign denominated debt. The notional amount of derivatives not
designated for hedge accounting was $181 billion, $158 billion and $144 billion at December 31,
2007, 2006 and 2005, respectively.
FC-31
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES Continued
Income Statement Effect of Derivative Instruments
The following table summarizes the estimated pre-tax gain (loss) for each type of hedge
designation discussed above, for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Classification
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
$
|
|
|
|
$
|
11
|
|
|
$
|
(1
|
)
|
|
Other income
|
Net interest settlements and accruals excluded
from the assessment of hedge effectiveness
|
|
|
|
|
|
|
19
|
|
|
|
257
|
|
|
Interest expense
|
Foreign exchange revaluation adjustments
excluded from the assessment of hedge
effectiveness (a) (b)
|
|
|
|
|
|
|
160
|
|
|
|
(350
|
)
|
|
Other income
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
Other income
|
Net interest settlements and accruals excluded
from the assessment of hedge effectiveness
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
Interest expense
|
Net investment hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
Other income
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
152
|
|
|
|
(179
|
)
|
|
|
(231
|
)
|
|
Other income
|
Foreign currency swaps and forward contracts (b)
|
|
|
(336
|
)
|
|
|
(151
|
)
|
|
|
(1,301
|
)
|
|
Other income
|
Other
|
|
|
1
|
|
|
|
1
|
|
|
|
0
|
|
|
Other income
|
|
|
|
(a)
|
|
Amount represents the portion of the derivatives fair value attributable to the change in foreign currency exchange
rates
|
|
(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.
|
Balance Sheet Effect of Derivative Instruments
The following table summarizes the estimated fair value of our derivative financial
instruments at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Fair
|
|
|
Fair
|
|
|
|
|
|
|
Fair
|
|
|
Fair
|
|
|
|
|
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
Value
|
|
|
Value
|
|
|
|
Notional
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Notional
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(in billions)
|
|
|
(in millions)
|
|
|
(in billions)
|
|
|
(in millions)
|
|
Fair value hedges
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
111
|
|
|
$
|
1
|
|
Derivatives not designated as hedging
instruments (a)
|
|
|
181
|
|
|
|
2,811
|
|
|
|
1,376
|
|
|
|
158
|
|
|
|
2,334
|
|
|
|
936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative financial instruments
|
|
$
|
181
|
|
|
$
|
2,811
|
|
|
$
|
1,376
|
|
|
$
|
159
|
|
|
$
|
2,445
|
|
|
$
|
937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Includes internal forward contracts between Ford Credit and an affiliated company.
|
FC-32
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 13. DISPOSITIONS AND OTHER ACTIONS
Dispositions
During the second quarter of 2005, we completed the sale of Triad Financial Corporation
(Triad). Triad specialized in automobile retail installment sales contracts with borrowers who
generally would not be expected to qualify, based on their credit worthiness, for traditional
financing sources such as those provided by commercial banks or automobile manufacturers
affiliated finance companies primarily through non-Ford dealerships. In 2005, we recognized a $4
million after-tax gain on disposal of discontinued operations. During the fourth quarter of 2007,
we received additional proceeds primarily based on better than anticipated securitized portfolio
performance, pursuant to a contractual agreement entered into at the closing of the sale, and
recognized an additional $6 million after-tax gain on disposal of discontinued operations.
Operating results of our discontinued operations for the years ended December 31 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in millions)
|
|
Total financing margin and other revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
59
|
|
Less: Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
|
Business Restructuring Germany
In 2006, FCE announced a plan to restructure its business in Germany that supports the sales
activities of automotive financial services of Ford, Jaguar, Land Rover and Mazda vehicles. The
plan included the consolidation of branches into district offices; these actions reduced ongoing
costs. We recognized pre-tax charges of $30 million in 2006. In 2007 we released $12 million of
the reserve related to lower than expected separations and paid $14 million. The costs associated
with the business restructuring were charged to
Operating expenses
. The restructuring was
completed in 2007.
The table below summarizes the pre-tax charges incurred and the related liability for the
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
Liability at Beginning of Period
|
|
$
|
31
|
|
|
$
|
|
|
(Released)/Accrued During Period
|
|
|
(12
|
)
|
|
|
30
|
|
Paid During Period
|
|
|
(14
|
)
|
|
|
|
|
Foreign Currency Translation
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
Liability at End of Period
|
|
$
|
7
|
|
|
$
|
31
|
|
|
|
|
|
|
|
|
FC-33
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 13. DISPOSITIONS AND OTHER ACTIONS Continued
Business Restructuring Spain
In 2007, FCE announced a plan to restructure its business in Spain that supports the sales
activities of automotive financial services of Ford, Jaguar, Land Rover, Mazda and Volvo vehicles.
The plan includes the consolidation of branches into district offices; these actions are expected
to reduce ongoing costs. We recognized pre-tax charges of $4 million in 2007. The costs
associated with the business restructuring are primarily related to employee separations and were
charged to
Operating expenses
. The related liability at December 31, 2007 and the estimated total
cost are $4 million. The restructuring will be completed in 2008.
Employee Separation Actions
In 2007, we recognized pre-tax charges of $45 million in
Operating expenses
for employee
separation actions (excluding costs for retirement plan and postretirement health care and life
insurance benefits) announced in 2006 in the United States and in 2007 in non-U.S. locations. The
majority of these actions were associated with our business transformation initiative to
consolidate branches into our existing service centers in North America. In addition, in 2007, we
incurred charges of $72 million for retirement plan and postretirement health care and life
insurance benefits related to these actions.
Sale of Business
During the third quarter of 2007, we sold a majority of our interest in AB Volvofinans, an
unconsolidated subsidiary that finances the sale of Volvo and Renault vehicles through Volvo
dealers in Sweden. As a result of the transaction, we received $157 million as proceeds from the
sale and recognized a pre-tax gain of $51 million reported in
Other income, net
.
FC-34
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 14. RETIREMENT BENEFITS AND STOCK OPTIONS
We are a participating employer in certain retirement, postretirement health care and life
insurance and stock option 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, 2007, filed separately with the Securities and Exchange Commission
(SEC).
Employee Retirement Plans
We are a participating employer in certain Ford-sponsored retirement plans and costs are
allocated to us based on the total number of participating employees at Ford Credit. Benefits
under the 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, expected
return on plan assets and average rate of increase in compensation) that Ford uses in determining
its retirement plan obligations.
Retirement plan costs allocated to Ford Credit for our employees in the United States
participating in the
Ford-sponsored plans was $90 million, $54 million and $29 million in 2007, 2006 and 2005,
respectively. The amount for 2007 included costs related to the employee separation actions
described in Note 13. The allocated cost for 2007, which was charged to
Operating expenses
, was
equivalent to approximately 9% 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 $(17) million, $(21) million
and $46 million in 2007, 2006 and 2005, respectively. The amount for 2007 included costs related
to the employee separation actions described in Note 13. The allocated cost for 2007, which was a
reduction to
Operating expenses
, was equivalent to approximately 7% 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. 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 $6 million, $5 million and $8 million in 2007, 2006 and 2005,
respectively. The allocated expense for 2007, which was charged to
Operating expenses
, was
equivalent to approximately 9% of Fords total stock option expense.
FC-35
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 15. TRANSACTIONS WITH AFFILIATED COMPANIES
Transactions with Ford and affiliated companies occur in the ordinary course of business. We
have a profit maintenance agreement with Ford that requires Ford to maintain our consolidated
Income before income taxes
and
Net income
at specified minimum levels; no payments were made under
this agreement during 2005 through 2007.
Income Statement
The income statement effects for the years ended December 31 of transactions with affiliated
companies were as follows (reductions to
Income before income taxes
are presented as negative
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Interest supplements and other support costs earned
from Ford and affiliated companies
|
|
$
|
4,592
|
|
|
$
|
3,487
|
|
|
$
|
3,259
|
|
Earned insurance premiums ceded to a Ford-owned affiliate
|
|
|
(252
|
)
|
|
|
(400
|
)
|
|
|
(550
|
)
|
Residual value support earned from Ford and affiliated companies (a)
|
|
|
327
|
|
|
|
410
|
|
|
|
374
|
|
Payments to Ford for marketing support, advice and services (b)
|
|
|
(284
|
)
|
|
|
(396
|
)
|
|
|
(285
|
)
|
Loss and loss adjustment expenses recovered from a
Ford-owned affiliate
|
|
|
107
|
|
|
|
197
|
|
|
|
279
|
|
Interest expense on debt with Ford and affiliated companies
|
|
|
(21
|
)
|
|
|
(23
|
)
|
|
|
(30
|
)
|
Interest income earned on receivables with Ford-owned dealers (c)
|
|
|
6
|
|
|
|
6
|
|
|
|
14
|
|
Interest income earned on notes receivables from Ford and
affiliated companies
|
|
|
36
|
|
|
|
26
|
|
|
|
8
|
|
Interest paid under tax sharing agreement with Ford (d)
|
|
|
(71
|
)
|
|
|
(137
|
)
|
|
|
|
|
Retirement benefits (e)
|
|
|
73
|
|
|
|
33
|
|
|
|
75
|
|
|
|
|
(a)
|
|
These amounts are primarily included in
Depreciation on vehicles subject to operating leases
.
|
|
(b)
|
|
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 and share in the costs of Fords fixed marketing. These costs are charged to
Operating expenses
.
|
|
(c)
|
|
Certain entities are reported as consolidated subsidiaries of Ford; revenue from providing financing to these entities is included in
Financing revenue
.
|
|
(d)
|
|
Under our intercompany tax sharing agreement with Ford, we pay interest on certain tax liabilities and earn interest on net tax assets. Interest paid to
Ford under this agreement is included in
Interest expense
. Interest earned by us under this agreement is included in
Other income, net
.
|
|
(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 14 for additional
information.
|
FC-36
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 15. TRANSACTIONS WITH AFFILIATED COMPANIES Continued
Balance Sheet
The balance sheet effects at December 31 of transactions with affiliated companies were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
Net finance receivables and operating leases
|
|
|
|
|
|
|
|
|
Receivables purchased from certain divisions and
affiliates of Ford (a)
|
|
$
|
3,680
|
|
|
$
|
3,904
|
|
Finance receivables with Ford-owned entities (b)
|
|
|
1,802
|
|
|
|
1,888
|
|
Net investment in vehicles leased to Ford (c)
|
|
|
664
|
|
|
|
843
|
|
Other assets/(liabilities)
|
|
|
|
|
|
|
|
|
Notes and accounts receivables from Ford and affiliated companies
|
|
|
906
|
|
|
|
950
|
|
Accounts payables to Ford and affiliated companies (d)
|
|
|
(2,308
|
)
|
|
|
(3,648
|
)
|
Vehicles held for resale that were purchased
from Ford and affiliated companies (e)
|
|
|
1,238
|
|
|
|
692
|
|
Income tax payable to Ford (f)
|
|
|
(1,514
|
)
|
|
|
|
|
Interest supplements due from Ford related to sold receivables (g)
|
|
|
169
|
|
|
|
316
|
|
Derivative liability with Ford
|
|
|
(319
|
)
|
|
|
(51
|
)
|
Debt with Ford and affiliated companies
|
|
|
(216
|
)
|
|
|
(177
|
)
|
|
|
|
(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. These receivables are
included in
Net finance receivables
and include the impact of consolidating our off-balance sheet
wholesale securitization program in the fourth quarter of 2005. At December 31, 2007, approximately
$670 million of these assets are subject to limited guarantees by Ford. In addition, at December
31, 2007, Ford guaranteed approximately $100 million of our finance receivables related to dealers.
|
|
(b)
|
|
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
Net
finance receivables
.
|
|
(c)
|
|
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.
|
|
(d)
|
|
At December 31, 2007, includes $925 million transferred from deferred taxes and $458 million for
post-retirement health care and life insurance benefits due to 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)
|
|
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.
|
|
(g)
|
|
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
.
|
FC-37
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 15. TRANSACTIONS WITH AFFILIATED COMPANIES Continued
Commitments and Contingencies
We provide various guarantees to third parties on behalf of Ford. At December 31, 2007, the
value of these guarantees totaled approximately $375 million; Ford counter-guarantees approximately
$150 million of these items. In addition, we provided guarantees to Ford on behalf of third
parties totaling $130 million at December 31, 2007.
Interest Supplements and Residual Value Support
In the United States and Canada, Ford is obligated to pay us approximately $5.4 billion of
interest supplements (including supplements related to sold receivables) and approximately $900
million of residual value support over the terms of the related finance contracts.
FC-38
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 16. SEGMENT AND GEOGRAPHIC INFORMATION
Segment Information
We divide our business segments based on geographic regions: the North America Segment
(includes operations in the United States and Canada) and the International Segment (includes
operations in all other countries). We measure the performance of our segments primarily on an
income before income taxes basis, after excluding the impact to earnings from gains and losses
related to market valuation adjustments from derivatives primarily related to movements in interest
rates. These adjustments are included in unallocated risk management and excluded in assessing
segment performance 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. The segments are
presented on a managed basis (managed basis includes on-balance sheet receivables and securitized
off-balance sheet receivables activity), and the effect of off-balance sheet securitizations is
included in unallocated/eliminations.
Key operating data for our business segments for the years ended or at December 31 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated/Eliminations
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
Unallocated
|
|
|
Effect of
|
|
|
|
|
|
|
|
|
|
America
|
|
|
International
|
|
|
Risk
|
|
|
Sales of
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Management
|
|
|
Receivables
|
|
|
Total
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (a)
|
|
$
|
15,191
|
|
|
$
|
3,906
|
|
|
$
|
(108
|
)
|
|
$
|
(351
|
)
|
|
$
|
(459
|
)
|
|
$
|
18,638
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
701
|
|
|
|
622
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
(108
|
)
|
|
|
1,215
|
|
Provision for income taxes
|
|
|
266
|
|
|
|
218
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
(38
|
)
|
|
|
446
|
|
Income 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (a)
|
|
$
|
14,757
|
|
|
$
|
3,447
|
|
|
$
|
(448
|
)
|
|
$
|
(509
|
)
|
|
$
|
(957
|
)
|
|
$
|
17,247
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,729
|
|
|
|
672
|
|
|
|
(448
|
)
|
|
|
|
|
|
|
(448
|
)
|
|
|
1,953
|
|
Provision for income taxes
|
|
|
591
|
|
|
|
235
|
|
|
|
(156
|
)
|
|
|
|
|
|
|
(156
|
)
|
|
|
670
|
|
Income from continuing operations
|
|
|
1,138
|
|
|
|
437
|
|
|
|
(292
|
)
|
|
|
|
|
|
|
(292
|
)
|
|
|
1,283
|
|
Other disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on vehicles subject to
operating leases
|
|
|
4,876
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,189
|
|
Interest expense
|
|
|
6,626
|
|
|
|
1,795
|
|
|
|
|
|
|
|
(603
|
)
|
|
|
(603
|
)
|
|
|
7,818
|
|
Provision for credit losses
|
|
|
(25
|
)
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
Finance receivables and net
investment in operating leases
|
|
|
108,388
|
|
|
|
39,161
|
|
|
|
4
|
|
|
|
(12,209
|
)
|
|
|
(12,205
|
)
|
|
|
135,344
|
|
Total assets
|
|
|
135,578
|
|
|
|
43,610
|
|
|
|
4
|
|
|
|
(11,219
|
)
|
|
|
(11,215
|
)
|
|
|
167,973
|
|
|
|
|
(a)
|
|
Total Revenue represents
Total financing revenue, Investment and other income related to sales of receivables, Insurance premiums earned,
net
and
Other income, net.
|
FC-39
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 16. SEGMENT AND GEOGRAPHIC INFORMATION Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated/Eliminations
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
Unallocated
|
|
|
Effect of
|
|
|
|
|
|
|
|
|
|
America
|
|
|
International
|
|
|
Risk
|
|
|
Sales of
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Management
|
|
|
Receivables
|
|
|
Total
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (a)
|
|
$
|
14,608
|
|
|
$
|
3,848
|
|
|
$
|
(912
|
)
|
|
$
|
(1,064
|
)
|
|
$
|
(1,976
|
)
|
|
$
|
16,480
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,921
|
|
|
|
914
|
|
|
|
(912
|
)
|
|
|
|
|
|
|
(912
|
)
|
|
|
2,923
|
|
Provision for income taxes
|
|
|
1,059
|
|
|
|
320
|
|
|
|
(320
|
)
|
|
|
|
|
|
|
(320
|
)
|
|
|
1,059
|
|
Income from continuing operations
|
|
|
1,862
|
|
|
|
594
|
|
|
|
(593
|
)
|
|
|
|
|
|
|
(593
|
)
|
|
|
1,863
|
|
Other disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on vehicles subject to
operating leases
|
|
|
3,969
|
|
|
|
461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,430
|
|
Interest expense
|
|
|
5,899
|
|
|
|
1,793
|
|
|
|
|
|
|
|
(1,076
|
)
|
|
|
(1,076
|
)
|
|
|
6,616
|
|
Provision for credit losses
|
|
|
97
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166
|
|
Finance receivables and net
investment in operating leases
|
|
|
113,421
|
|
|
|
36,602
|
|
|
|
71
|
|
|
|
(18,005
|
)
|
|
|
(17,934
|
)
|
|
|
132,089
|
|
Total assets
|
|
|
138,094
|
|
|
|
40,682
|
|
|
|
71
|
|
|
|
(16,585
|
)
|
|
|
(16,514
|
)
|
|
|
162,262
|
|
|
|
|
(a)
|
|
Total Revenue represents
Total financing revenue, Investment and other income related to sales of receivables, Insurance premiums
earned, net
and
Other income, net.
|
FC-40
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 16. SEGMENT AND GEOGRAPHIC INFORMATION Continued
Geographic Information
Total revenue, income before income taxes, income from continuing operations, finance
receivables, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in millions)
|
|
Revenue (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States operations
|
|
$
|
12,339
|
|
|
$
|
11,635
|
|
|
$
|
10,922
|
|
Canadian operations
|
|
|
2,569
|
|
|
|
2,185
|
|
|
|
1,826
|
|
European operations
|
|
|
2,809
|
|
|
|
2,396
|
|
|
|
2,617
|
|
Other foreign operations
|
|
|
921
|
|
|
|
1,031
|
|
|
|
1,115
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
18,638
|
|
|
$
|
17,247
|
|
|
$
|
16,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
United States operations
|
|
$
|
417
|
|
|
$
|
895
|
|
|
$
|
1,638
|
|
Canadian operations
|
|
|
(24
|
)
|
|
|
143
|
|
|
|
237
|
|
European operations
|
|
|
555
|
|
|
|
561
|
|
|
|
664
|
|
Other foreign operations
|
|
|
267
|
|
|
|
354
|
|
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
Total income before income taxes
|
|
$
|
1,215
|
|
|
$
|
1,953
|
|
|
$
|
2,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables and net investment in operating leases
|
|
|
|
|
|
|
|
|
|
|
|
|
United States operations
|
|
$
|
87,157
|
|
|
$
|
87,594
|
|
|
$
|
87,073
|
|
Canadian operations
|
|
|
14,383
|
|
|
|
10,993
|
|
|
|
11,478
|
|
European operations
|
|
|
31,674
|
|
|
|
28,780
|
|
|
|
25,076
|
|
Other foreign operations
|
|
|
7,917
|
|
|
|
7,977
|
|
|
|
8,462
|
|
|
|
|
|
|
|
|
|
|
|
Total finance receivables and net investment in operating leases
|
|
$
|
141,131
|
|
|
$
|
135,344
|
|
|
$
|
132,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Total Revenue represents
Total financing revenue, Investment and other income related to sales of receivables,
Insurance premiums earned, net
and
Other income, net.
|
The 2006 and 2005 geographic information has been corrected and reclassified between the
locations to provide comparability to amounts reported in 2007. These corrections and
reclassifications only impacted the geographic information above.
FC-41
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected financial data by calendar quarter were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Full
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
|
(in millions)
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (a)
|
|
$
|
4,537
|
|
|
$
|
4,298
|
|
|
$
|
4,928
|
|
|
$
|
4,875
|
|
|
$
|
18,638
|
|
Depreciation on vehicles
subject to operating
leases
|
|
|
1,475
|
|
|
|
1,450
|
|
|
|
1,596
|
|
|
|
1,667
|
|
|
|
6,188
|
|
Interest expense
|
|
|
2,149
|
|
|
|
2,166
|
|
|
|
2,149
|
|
|
|
2,166
|
|
|
|
8,630
|
|
Total financing margin and
other revenue (b)
|
|
|
913
|
|
|
|
682
|
|
|
|
1,183
|
|
|
|
1,042
|
|
|
|
3,820
|
|
Provision for credit losses
|
|
|
46
|
|
|
|
82
|
|
|
|
173
|
|
|
|
287
|
|
|
|
588
|
|
Income from continuing
operations
|
|
|
193
|
|
|
|
62
|
|
|
|
334
|
|
|
|
180
|
|
|
|
769
|
|
Net income
|
|
|
193
|
|
|
|
62
|
|
|
|
334
|
|
|
|
186
|
|
|
|
775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (a)
|
|
$
|
3,922
|
|
|
$
|
4,153
|
|
|
$
|
4,705
|
|
|
$
|
4,467
|
|
|
$
|
17,247
|
|
Depreciation on vehicles
subject to operating
leases
|
|
|
1,181
|
|
|
|
1,264
|
|
|
|
1,374
|
|
|
|
1,370
|
|
|
|
5,189
|
|
Interest expense
|
|
|
1,793
|
|
|
|
1,907
|
|
|
|
2,022
|
|
|
|
2,096
|
|
|
|
7,818
|
|
Total financing margin and
other revenue
|
|
|
948
|
|
|
|
982
|
|
|
|
1,309
|
|
|
|
1,001
|
|
|
|
4,240
|
|
Provision for credit losses
|
|
|
5
|
|
|
|
(7
|
)
|
|
|
66
|
|
|
|
31
|
|
|
|
95
|
|
Income from continuing
operations
|
|
|
248
|
|
|
|
304
|
|
|
|
452
|
|
|
|
279
|
|
|
|
1,283
|
|
Net income
|
|
|
248
|
|
|
|
304
|
|
|
|
452
|
|
|
|
279
|
|
|
|
1,283
|
|
|
|
|
(a)
|
|
Total Revenue represents
Total financing revenue, Investment and other income related to sales of
receivables, Insurance premiums earned, net
and
Other income, net.
|
|
(b)
|
|
In the fourth quarter of 2007, we recorded a $55 million unfavorable cumulative adjustment to correct
the valuation related to certain interest rate swaps. The impact on previously issued annual and interim
financial statements and 2007 full year income was not material.
|
FC-42
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS Continued
NOTE 18. COMMITMENTS AND CONTINGENCIES
Lease Commitments
At December 31, 2007, we had the following future minimum rental commitments under
non-cancelable operating leases (in millions): 2008 $57; 2009 $46; 2010 $33; 2011 $9; 2012
$3; thereafter $5. These amounts include rental commitments for certain land, buildings,
machinery and equipment. Our rental expense was $68 million, $71 million and $79 million in 2007,
2006 and 2005, respectively.
Guarantees and Indemnifications
The fair values of guarantees and indemnifications issued during 2007 and 2006 are recorded in
the financial statements and are not material. At December 31, 2007 and 2006, 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 joint
ventures and Ford. Expiration dates vary, and guarantees will terminate on payment and/or
cancellation of the obligation. A payment would be triggered by failure of the guaranteed party to
fulfill its obligation covered by the guarantee. In some circumstances, we are entitled to recover
from Ford or an affiliate of Ford amounts paid by us under the guarantee. However, our ability to
enforce these rights is sometimes stayed until the guaranteed party is paid in full. The maximum
potential payments under these guarantees totaled approximately $497 million in 2007 and $623
million in 2006; of these values, $150 million and $103 million for 2007 and 2006, respectively,
were counter-guaranteed by Ford to us. No losses have been recorded for these guarantees.
Indemnifications
: In the ordinary course of business, we execute contracts involving
indemnifications standard in the industry and indemnifications specific to a transaction such as
debt funding, derivatives, sale of receivables and the sale of businesses. These indemnifications
might include claims against any of the following: intellectual property and privacy rights;
governmental regulations and employment-related matters; dealer, supplier and other commercial
contractual relationships; financial status; tax related issues; securities law; and environmental
related issues. Performance under these indemnities would generally be triggered by a breach of
terms of the contract or by a third-party claim. We regularly evaluate the probability of having
to incur costs associated with these indemnifications and have accrued for expected losses that are
probable. We are party to numerous indemnifications and many of these indemnities do not limit
potential payment; therefore, we are unable to estimate a maximum amount of potential future
payments that could result from claims made under these indemnities.
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, 2007. We do not reasonably expect, based on our analysis, that such matters would
have a significant effect on future financial statements for a particular year, although such an
outcome is possible.
FC-43
EXHIBIT INDEX
|
|
|
|
|
Designation
|
|
Description
|
|
Method of Filing
|
|
|
|
|
|
Exhibit 3-A
|
|
Certificate of Formation of Ford
Motor Credit Company LLC.
|
|
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.
|
|
|
|
|
|
Exhibit 3-B
|
|
Limited Liability Company
Agreement of Ford Motor Credit
Company LLC dated as of April 30,
2007.
|
|
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.
|
|
|
|
|
|
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
|
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