The decrease in pre-tax earnings primarily reflected the impairment charge for operating leases, higher depreciation expense for leased vehicles, and higher provision for credit losses. These were offset partially by the non-recurrence of net losses related to market valuation adjustments from derivatives, higher financing margin, a gain related to the sale of approximately half of our ownership interest in our Nordic operations, and lower operating costs.
During the second quarter of 2008, higher fuel prices and the weak economic climate in North America resulted in a pronounced shift in consumer preferences from full-size trucks and traditional sport utility vehicles to smaller, more fuel-efficient vehicles. This shift in consumer preferences combined with a weak economic climate caused a significant reduction in auction values for used full-size trucks and traditional sport utility vehicles. In addition, Ford Motor Credit completed its quarterly North America operating lease review and projected that lease-end residual values would be significantly lower than previously expected for full-size trucks and traditional sport utility vehicles. As a result of these market factors and Ford Motor Credit's portfolio review, Ford Motor Credit determined a pre-tax impairment charge of $2.1 billion was required.
"Dramatic, rapid marketplace changes are driving increased weakness in the vehicle auction markets, in turn affecting the entire industry, including Ford Motor Credit," said Mike Bannister, chairman and CEO of Ford Motor Credit. "We regularly review and adjust lease residual values to align with market conditions. In addition, the core of our business remains strong, because it is built upon lending practices, risk management and collections activities that are consistent and prudent."
On June 30, 2008, Ford Motor Credit's on-balance sheet net receivables totaled $136 billion, compared with $141 billion at year-end 2007. Managed receivables were $140 billion on June 30, 2008, down from $147 billion on December 31, 2007. The lower receivables were more than explained by lower North America receivables, the impact of divestitures, and the impairment charge for operating leases, offset partially by changes in currency exchange rates.
On June 30, 2008, managed leverage was 10 to 1.
Ford Motor Credit Company LLC is one of the world's largest automotive
finance companies and has supported the sale of Ford Motor Company
products since 1959. Ford Motor Credit is an indirect, wholly owned
subsidiary of Ford. It provides automotive financing for Ford, Lincoln,
Mercury, Jaguar, Land Rover, Mazda and Volvo dealers and customers. More
information can be found at
www.fordcredit.com and at Ford Motor
Credit's investor center,
www.fordcredit.com/investorcenter/
- - - - -
* 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, 2008.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
PRELIMINARY
CONSOLIDATED STATEMENT OF INCOME
For the Periods Ended June 30, 2008 and 2007
(in millions)
Second Quarter First Half
--------------- ---------------
2008 2007 2008 2007
------- ------- ------- -------
(Unaudited) (Unaudited)
Financing revenue
Operating leases $ 1,695 $ 1,554 $ 3,402 $ 3,049
Retail 779 837 1,638 1,696
Interest supplements and other
support costs earned from
affiliated companies 1,247 1,125 2,493 2,192
Wholesale 438 552 915 1,092
Other 36 43 71 90
------- ------- ------- -------
Total financing revenue 4,195 4,111 8,519 8,119
Depreciation on vehicles subject to
operating leases (4,090) (1,450) (5,904) (2,925)
Interest expense (1,901) (2,166) (3,893) (4,315)
------- ------- ------- -------
Net financing margin (1,796) 495 (1,278) 879
Other revenue
Investment and other income
related to sales of receivables 48 102 117 211
Insurance premiums earned, net 42 43 82 87
Other income, net 303 42 421 418
------- ------- ------- -------
Total financing margin and
other revenue (1,403) 682 (658) 1,595
Expenses
Operating expenses 379 450 746 1,006
Provision for credit losses 545 82 872 128
Insurance expenses 53 38 72 55
------- ------- ------- -------
Total expenses 977 570 1,690 1,189
------- ------- ------- -------
Income/(Loss) before income taxes (2,380) 112 (2,348) 406
Provision for/(Benefit from) income
taxes (945) 50 (936) 151
------- ------- ------- -------
Income/(Loss) before minority
interests (1,435) 62 (1,412) 255
Minority interests in net income of
subsidiaries 0 0 0 0
------- ------- ------- -------
Income/(Loss) from continuing
operations (1,435) 62 (1,412) 255
Gain on disposal of discontinued
operations 8 - 9 -
------- ------- ------- -------
Net income/(loss) $(1,427)$ 62 $(1,403)$ 255
======= ======= ======= =======
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
PRELIMINARY
CONSOLIDATED BALANCE SHEET
(in millions)
June 30, December 31,
2008 2007
------------ -------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 12,673 $ 14,137
Marketable securities 7,425 3,155
Finance receivables, net 109,088 111,468
Net investment in operating leases 26,553 29,663
Retained interest in securitized assets 380 653
Notes and accounts receivable from affiliated
companies 875 906
Derivative financial instruments 2,148 2,811
Other assets 5,259 6,230
-------- --------
Total assets $164,401 $169,023
======== ========
LIABILITIES AND SHAREHOLDER'S INTEREST
Liabilities
Accounts payable
Customer deposits, dealer reserves and other $ 1,866 $ 1,837
Affiliated companies 1,919 2,308
-------- --------
Total accounts payable 3,785 4,145
Debt 137,519 139,411
Deferred income taxes 3,685 5,380
Derivative financial instruments 1,297 1,376
Other liabilities and deferred income 5,810 5,314
-------- --------
Total liabilities 152,096 155,626
Minority interests in net assets of subsidiaries 0 3
Shareholder's interest
Shareholder's interest 5,149 5,149
Accumulated other comprehensive income 2,038 1,730
Retained earnings 5,118 6,515
-------- --------
Total shareholder's interest 12,305 13,394
-------- --------
Total liabilities and shareholder's
interest $164,401 $169,023
======== ========
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
OPERATING HIGHLIGHTS
Second Quarter First Half
---------------- ----------------
2008 2007 2008 2007
------ ------ ------ ------
Financing Shares
United States
Financing share - Ford, Lincoln
and Mercury
Retail installment and lease 39% 38% 38% 37%
Wholesale 77 78 77 78
Europe
Financing share - Ford
Retail installment and lease 28% 27% 27% 26%
Wholesale 98 97 97 97
Contract Volume - New and used
retail/lease (in thousands)
North America segment
United States 312 354 587 659
Canada 48 59 79 94
----- ----- ----- -----
Total North America segment 360 413 666 753
International segment
Europe 177 186 355 371
Other international 29 47 78 106
----- ----- ----- -----
Total International segment 206 233 433 477
----- ----- ----- -----
Total contract volume 566 646 1,099 1,230
===== ===== ===== =====
Borrowing Cost Rate* 5.4% 6.1% 5.5% 6.0%
Charge-offs (in millions)
On-Balance Sheet Receivables
Retail installment and lease $232 $116 $458 $218
Wholesale 12 8 13 12
Other 2 1 4 2
----- ----- ----- -----
Total charge-offs -
on-balance sheet receivables $246 $125 $475 $232
===== ===== ===== =====
Total loss-to-receivables ratio 0.70% 0.36% 0.67% 0.34%
Managed Receivables**
Retail installment and lease $240 $130 $480 $250
Wholesale 12 8 13 12
Other 2 1 4 2
----- ----- ----- -----
Total charge-offs -
managed receivables $254 $139 $497 $264
===== ===== ===== =====
Total loss-to-receivables ratio 0.70% 0.38% 0.68% 0.36%
- - - - -
* 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 Motor Credit's financial performance, Ford Motor Credit management uses financial statements and other financial measures in accordance with Generally Accepted Accounting Principles ("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 Motor Credit's
balance sheet, excluding unearned interest supplements related to
finance receivables, and receivables Ford Motor Credit sold in
off-balance sheet securitizations and continues to service
-- Charge-offs on managed receivables: charge-offs associated with
receivables reported on Ford Motor Credit's balance sheet and
charge-offs associated with receivables that Ford Motor Credit sold in
off-balance sheet securitizations and continues to service
-- Equity: shareholder's interest reported on Ford Motor Credit's balance
sheet
IMPACT OF ON-BALANCE SHEET SECURITIZATION: Finance receivables (retail
and wholesale) and net investment in operating leases reported on Ford
Motor Credit's balance sheet include assets included in securitizations
that do not qualify for accounting sale treatment. These assets are
available only for repayment of the debt or other obligations issued or
arising in the securitization transactions; they are not available to
pay the other obligations of Ford Motor Credit or the claims of Ford
Motor Credit's other creditors. Debt reported on Ford Motor Credit's
balance sheet includes obligations issued or arising in securitizations
that are payable only out of collections on the underlying securitized
assets and related enhancements.
RECONCILIATION OF NON-GAAP MEASURES TO GAAP:
Managed Leverage Calculation June 30, December 31,
2008 2007
---------- ------------
(in billions)
Total debt $137.5 $139.4
Securitized off-balance sheet receivables
outstanding 3.0 6.0
Retained interest in securitized
off-balance sheet receivables (0.4) (0.7)
Adjustments for cash, cash equivalents
and marketable securities* (19.6) (16.7)
Adjustments for hedge accounting** (0.1) 0.0
------ ------
Total adjusted debt $120.4 $128.0
====== ======
Total equity (including minority interest) $ 12.3 $ 13.4
Adjustments for hedge accounting** (0.2) (0.3)
------ ------
Total adjusted equity $ 12.1 $ 13.1
====== ======
Managed leverage (to 1) = Total adjusted
debt / Total adjusted equity 10.0 9.8
Memo: Financial statement leverage (to 1)
= Total debt / Total equity 11.2 10.4
Net Finance Receivables and Operating
Leases June 30, December 31,
2008 2007
---------- ------------
On-Balance Sheet Receivables (in billions)
Retail installment $ 70.9 $ 73.3
Wholesale 35.9 34.7
Other finance receivables 3.3 3.4
Unearned interest supplements (1.0) -
------ ------
Finance receivables, net 109.1 111.4
Net investment in operating leases 26.6 29.7
------ ------
Total net finance receivables and
operating leases $135.7 $141.1
====== ======
Off-Balance Sheet Receivables - Retail $ 3.0 $ 6.0
Managed Receivables
Retail installment $ 73.9 $ 79.3
Wholesale 35.9 34.7
Other finance receivables 3.3 3.4
Unearned interest supplements - -
------ ------
Finance receivables, net 113.1 117.4
Net investment in operating leases 26.6 29.7
------ ------
Total net finance receivables and
operating leases $139.7 $147.1
====== ======
- - - - -
* Excludes marketable securities related to insurance activities.
** Primarily related to market valuation adjustments from derivatives due
to movements in interest rates.
Web site:
http://www.fordcredit.com/
http://www.fordcredit.com/investorcenter//