Ford Credit Earns $556 Million in the Second Quarter of 2010*
DEARBORN, Mich., July 23 -- Ford Motor Credit Company reported net income of $556 million in the second quarter of 2010, an increase of $143 million from earnings of $413 million a year earlier. On a pre-tax basis, Ford Credit earned $888 million in the second quarter, compared with $646 million in the previous year. On a pre-tax basis, Ford Credit earned $1.7 billion in the first half of 2010, compared with $610 million in the first half of 2009.
The increase in pre-tax earnings was more than explained by a lower provision for credit losses and lower depreciation expense for leased vehicles due to higher auction values. These factors were offset partially by the non-recurrence of net gains related to unhedged currency exposure from cross-border intercompany lending and lower volume.
"Economic indicators are mixed, but overall continue to trend upward," Chairman and CEO Mike Bannister said. "More favorable external conditions, combined with our own strong and consistent originations and servicing practices, continued to drive positive results in the second quarter. We are anticipating strong results for the full year."
On June 30, 2010, Ford Credit's on-balance sheet net receivables totaled $85 billion, compared with $93 billion at year-end 2009. Managed receivables were $87 billion on June 30, 2010, down from $95 billion on December 31, 2009. The lower receivables primarily reflected the transition of Jaguar, Land Rover, Mazda, and Volvo financing to other finance providers, lower industry and financing volumes in 2009 and 2010 compared with prior years, and changes in currency exchange rates.
On June 30, 2010, managed leverage was 6.6 to 1. On June 30, 2010, Ford Credit paid $1.3 billion in cash to the UAW Retiree Medical Benefits Trust to settle a portion of the outstanding principal amount of Note A held by the trust and immediately transferred to Ford Motor Company the portion of Note A that it purchased from the trust to satisfy $1.3 billion of intercompany tax liabilities it owed to Ford Motor Company.
Ford Credit now expects full year 2010 profits to be higher than its 2009 profits. The second half of 2010 will be lower than the first half because Ford Credit expects smaller improvements in the provision for credit losses and depreciation expense for leased vehicles compared with the improvements during the first half. For full year 2011, Ford Credit expects to continue to be solidly profitable but at a lower level than in 2010 primarily reflecting the non-recurrence of lower depreciation expense for leased vehicles and the non-recurrence of credit loss reserve reductions of the same magnitude as 2010.
Ford Motor Credit Company LLC is one of the world's largest automotive finance companies and has provided dealer and customer financing to support the sale of Ford Motor Company products since 1959. Ford Credit is an indirect, wholly owned subsidiary of Ford. For more information, visit www.fordcredit.com.
-- -- -- -- --
* The financial results discussed herein are presented on a preliminary basis; final data will be included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.
Cautionary Statement Regarding Forward Looking Statements
Statements included or incorporated by reference herein may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on expectations, forecasts and assumptions by our management and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation:
Automotive Related:
-- Further declines in industry sales volume, particularly in the United
States or Europe, due to financial crisis, recession, geo-political
events or other factors;
-- Decline in Ford's market share;
-- Continued or increased price competition for Ford vehicles resulting
from industry overcapacity, currency fluctuations or other factors;
-- An increase in or acceleration of market shift beyond Ford's current
planning assumptions from sales of trucks, medium- and large-sized
utilities, or other more profitable vehicles, particularly in the
United States;
-- A return to elevated gasoline prices, as well as the potential for
volatile prices or reduced availability;
-- Lower-than-anticipated market acceptance of new or existing Ford
products;
-- Adverse effects from the bankruptcy, insolvency, or government-funded
restructuring of, change in ownership or control of, or alliances
entered into by a major competitor;
-- Economic distress of suppliers may require Ford to provide substantial
financial support or take other measures to ensure supplies of
components or materials and could increase Ford's costs, affect Ford's
liquidity, or cause production disruptions;
-- Work stoppages at Ford or supplier facilities or other interruptions
of production;
-- Single-source supply of components or materials;
-- Restriction on use of tax attributes from tax law "ownership change";
-- The discovery of defects in Ford vehicles resulting in delays in new
model launches, recall campaigns or increased warranty costs;
-- Increased safety, emissions, fuel economy or other regulation
resulting in higher costs, cash expenditures and/or sales
restrictions;
-- Unusual or significant litigation or governmental investigations
arising out of alleged defects in Ford products, perceived
environmental impacts, or otherwise;
-- A change in Ford's requirements for parts or materials where it has
entered into long-term supply arrangements that commit it to purchase
minimum or fixed quantities of certain parts or materials, or to pay a
minimum amount to the seller ("take-or-pay contracts");
-- Adverse effects on Ford's results from a decrease in or cessation of
government incentives related to capital investments;
-- Adverse effects on Ford's operations resulting from certain
geo-political or other events;
-- Substantial levels of indebtedness adversely affecting Ford's
financial condition or preventing Ford from fulfilling its debt
obligations (which may grow because Ford is able to incur
substantially more debt, including additional secured debt);
Ford Credit Related:
-- A prolonged disruption of the debt and securitization markets;
-- Inability to access debt, securitization or derivative markets around
the world at competitive rates or in sufficient amounts due to credit
rating downgrades, market volatility, market disruption, regulatory
requirements or otherwise;
-- Inability to obtain competitive funding;
-- Higher-than-expected credit losses;
-- Adverse effects from the government-supported restructuring of, change
in ownership or control of, or alliances entered into by a major
competitor;
-- Increased competition from banks or other financial institutions
seeking to increase their share of retail installment financing Ford
vehicles;
-- Collection and servicing problems related to our finance receivables
and net investment in operating leases;
-- Lower-than-anticipated residual values or higher-than-expected return
volumes for leased vehicles;
-- New or increased credit, consumer or data protection or other laws and
regulations resulting in higher costs and/or additional financing
restrictions;
-- Changes in Ford's operations or changes in Ford's marketing programs
could result in a decline in our financing volumes;
General:
-- Fluctuations in foreign currency exchange rates and interest rates;
-- Failure of financial institutions to fulfill commitments under
committed credit and liquidity facilities;
-- Labor or other constraints on Ford's or our ability to restructure its
or our business;
-- Substantial pension and postretirement healthcare and life insurance
liabilities impairing Ford's or our liquidity or financial condition;
and
-- Worse-than-assumed economic and demographic experience for
postretirement benefit plans (e.g., discount rates or investment
returns).
We cannot be certain that any expectations, forecasts, or assumptions made by management in preparing these forward-looking statements will prove accurate, or that any projections will be realized. It is to be expected that there may be differences between projected and actual results. Our forward-looking statements speak only as of the date of their initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. For additional discussion of these risk factors, see Item 1A of Part I of our 2009 10-K Report and Item 1A of Part I of Ford's 2009 10-K Report.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
PRELIMINARY
CONSOLIDATED STATEMENT OF OPERATIONS
For the Periods Ended June 30, 2010 and 2009
(in millions)
Second Quarter First Half
-------------- ----------
2010 2009 2010 2009
---- ---- ---- ----
Financing revenue
Operating leases $864 $1,288 $1,852 $2,686
Retail 593 760 1,217 1,516
Interest supplements and other
support costs earned from
affiliated 858 926 1,725 1,896
companies
Wholesale 216 230 441 521
Other 12 22 32 42
--- --- --- ---
Total financing revenue 2,543 3,226 5,267 6,661
Depreciation on vehicles subject
to operating leases (475) (943) (1,116) (2,358)
Interest expense (1,086) (1,290) (2,213) (2,710)
------ ------ ------ ------
Net financing margin 982 993 1,938 1,593
Other revenue
Insurance premiums earned, net 24 27 50 56
Other income, net 39 366 135 430
--- --- --- ---
Total financing margin and other
revenue 1,045 1,386 2,123 2,079
Expenses
Operating expenses 288 322 580 650
Provision for credit losses (151) 397 (202) 782
Insurance expenses 20 21 29 37
--- --- --- ---
Total expenses 157 740 407 1,469
--- --- --- -----
Income before income taxes 888 646 1,716 610
Provision for income taxes 332 235 632 212
--- --- --- ---
Income from continuing operations 556 411 1,084 398
Gain on disposal of discontinued
operations - 2 - 2
--- --- --- ---
Net income $556 $413 $1,084 $400
==== ==== ====== ====
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
PRELIMINARY
CONSOLIDATED BALANCE SHEET
(in millions)
December
June 30, 31,
2010 2009
---- ----
ASSETS
Cash and cash equivalents $9,473 $10,882
Marketable securities 8,478 6,864
Finance receivables, net 72,895 77,968
Net investment in operating leases 11,613 14,578
Notes and accounts receivable from
affiliated companies 1,013 1,090
Derivative financial instruments 1,499 1,862
Other assets 3,117 4,100
----- -----
Total assets $108,088 $117,344
======== ========
LIABILITIES AND SHAREHOLDER'S INTEREST
Liabilities
Accounts payable
Customer deposits, dealer reserves and
other $1,074 $1,082
Affiliated companies 1,491 1,145
----- -----
Total accounts payable 2,565 2,227
Debt 88,471 96,333
Deferred income taxes 1,746 1,816
Derivative financial instruments 753 1,179
Other liabilities and deferred income 3,630 4,809
----- -----
Total liabilities 97,165 106,364
Shareholder's interest
Shareholder's interest 5,174 5,149
Accumulated other comprehensive income 386 1,052
Retained earnings 5,363 4,779
----- -----
Total shareholder's interest 10,923 10,980
------ ------
Total liabilities and shareholder's
interest $108,088 $117,344
======== ========
-- -- -- -- --
The following table includes assets to be used to settle the liabilities of the consolidated variable interest entities ("VIEs"). These assets and liabilities are included in the consolidated balance sheet above.
December
June 30, 31,
2010 2009
---- ----
Cash and cash equivalents $4,779 $4,895
Finance receivables, net 52,187 57,353
Net investment in operating leases 8,911 10,246
Derivative financial instruments - assets 32 55
Debt 45,378 46,153
Derivative financial instruments -
liabilities 346 528
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
OPERATING HIGHLIGHTS
Second Quarter First Half
-------------- ----------
2010 2009 2010 2009
---- ---- ---- ----
Financing Shares
United States
Financing share - Ford, Lincoln
and Mercury
Retail installment and lease 30% 28% 32% 29%
Wholesale 81 79 81 78
Europe
Financing share - Ford
Retail installment and lease 25% 28% 24% 27%
Wholesale 98 99 99 99
Contract Volume - New and used
retail/lease (in thousands)
North America Segment
United States 181 153 356 288
Canada 28 33 45 53
--- --- --- ---
Total North America Segment 209 186 401 341
International Segment
Europe 86 124 185 246
Other international 7 9 17 26
--- --- --- ---
Total International Segment 93 133 202 272
--- --- --- ---
Total contract volume 302 319 603 613
=== === === ===
Borrowing Cost Rate* 4.7% 5.0% 4.7% 5.0%
Charge-offs - On-Balance Sheet
(in millions)
Retail installment and lease $79 $261 $222 $570
Wholesale 5 21 0 40
Other 2 3 (3) 7
--- --- --- ---
Total charge-offs - on-balance
sheet $86 $285 $219 $617
=== ==== ==== ====
Total loss-to-receivables ratio
- on-balance sheet 0.39% 1.09% 0.49% 1.15%
Memo :
Total charge-offs - managed (in
millions)** $86 $286 $219 $621
Total loss-to-receivables ratio
- managed** 0.39% 1.09% 0.49% 1.16%
- - - - -
* On-balance sheet debt includes the effects of derivatives and
facility fees.
** See Appendix for additional information.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
APPENDIX
In evaluating Ford Credit's financial performance, Ford Credit
management uses financial measures based on Generally Accepted
Accounting Principles ("GAAP"), as well as financial measures that
include adjustments from GAAP. Included below are brief definitions
of key terms, information about the impact of on-balance sheet
securitization and a reconciliation of non-GAAP measures to GAAP:
Managed receivables: receivables reported on Ford Credit's balance
sheet, excluding unearned interest supplements
-- related to finance receivables, and securitized off-balance
sheet receivables that Ford Credit continues to service
Charge-offs on managed receivables: charge-offs associated with
receivables reported on Ford Credit's balance sheet and
-- charge-offs associated with receivables that Ford Credit sold
in off-balance sheet securitizations and continues to service
--Equity: shareholder's interest reported on Ford Credit's balance
sheet
IMPACT OF ON-BALANCE SHEET SECURITIZATION: Finance receivables
(retail and wholesale) and net investment in operating
leases reported on Ford Credit's balance sheet include assets that
have been sold for legal purposes in securitization transactions
that do not satisfy the requirements for accounting sale treatment.
These receivables are available only for payment of the debt
and other obligations issued or arising in the securitization
transactions; they are not available to pay the other obligations of
Ford
Credit or the claims of Ford Credit's other creditors. Debt reported
on Ford Credit's balance sheet includes obligations issued or
arising in securitization transactions that are payable only out of
collections on the underlying securitized assets and related
enhancements. Ford Credit holds the right to the excess cash flows
not needed to pay the debt and other obligations issued or
arising in each of these securitization transactions.
-----------------------------------------------------
RECONCILIATION OF NON-GAAP MEASURES TO
GAAP:
--------------------------------------
December
Managed Leverage Calculation June 30, 31,
2010 2009
---- ----
(in billions)
Total debt $88.5 $96.3
Securitized off-balance sheet receivables
outstanding - 0.1
Retained interest in securitized off-
balance sheet receivables - 0.0
Adjustments for cash, cash equivalents, and
marketable securities* (17.4) (17.3)
Adjustments for derivative accounting** (0.4) (0.2)
---- ----
Total adjusted debt $70.7 $78.9
===== =====
Equity $10.9 $11.0
Adjustments for derivative accounting** (0.1) (0.2)
---- ----
Total adjusted equity $10.8 $10.8
===== =====
Managed leverage (to 1) = Total adjusted
debt /Total adjusted equity 6.6 7.3
Memo: Financial statement leverage (to 1)
= Total debt /Equity 8.1 8.8
Net Finance Receivables and Operating December
Leases June 30, 31,
2010 2009
---- ----
Receivables - On-Balance Sheet (in billions)
Retail installment $51.5 $56.3
Wholesale 21.8 22.4
Other finance receivables 2.6 2.4
Unearned interest supplements (2.0) (1.9)
Allowance for credit losses (1.0) (1.3)
---- ----
Finance receivables, net 72.9 77.9
Net investment in operating leases 11.6 14.6
---- ----
Total receivables - on-balance sheet $84.5 $92.5
===== =====
Memo: Total receivables - managed*** $86.5 $94.5
- - - - -
* Excludes marketable securities related to insurance activities.
** Primarily related to market valuation adjustments to
derivatives due to movements in interest rates.
Adjustments to debt are related to designated fair value hedges and
adjustments to equity are related to
retained earnings.
*** Includes on-balance sheet receivables, excluding unearned
interest supplements related to finance
receivables of $2 billion and $1.9 billion at June 30, 2010 and
December 31, 2009, respectively; and
includes off-balance sheet retail receivables of about $100 million
at December 31, 2009.