FORD MOTOR CREDIT CO LLC - FORM 10-Q - April 28, 2015

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-Q
(Mark One)
R
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
For the quarterly period ended March 31, 2015
 

or
£
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
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)
Delaware
38-1612444
(State of organization)
(I.R.S. employer identification no.)
One American Road, Dearborn, Michigan
48126
(Address of principal executive offices)
(Zip code)

(313) 322-3000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes  o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes  þ No

All of the limited liability company interests in the registrant (“Shares”) are held by an affiliate of the registrant. None of the Shares are publicly traded.

REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

 
Exhibit Index begins on page 47 




FORD MOTOR CREDIT COMPANY LLC
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2015
 
 
 
 
 
Table of Contents
 
Page
 
 
 
 
 
Part I. Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II. Other Information
 
 
 
 
 
 
 
 


i

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.


FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
For the Periods Ended March 31, 2015 and 2014
(in millions)

 
First Quarter
 
2015
 
2014
 
(unaudited)
Financing revenue
 
 
 
Operating leases
$
1,120

 
$
966

Retail financing
685

 
696

Dealer financing
374

 
393

Other
18

 
21

Total financing revenue
2,197

 
2,076

Depreciation on vehicles subject to operating leases
(816
)
 
(705
)
Interest expense
(638
)
 
(666
)
Net financing margin
743

 
705

Other revenue
 

 
 

Insurance premiums earned
31

 
32

Other income, net (Note 11)
54

 
51

Total financing margin and other revenue
828

 
788

Expenses
 

 
 

Operating expenses
272

 
250

Provision for credit losses (Note 4)
67

 
31

Insurance expenses
6

 
8

Total expenses
345

 
289

Income before income taxes
483

 
499

Provision for income taxes
177

 
187

Net income
$
306

 
$
312



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Periods Ended March 31, 2015 and 2014
(in millions)

 
First Quarter
 
2015
 
2014
 
(unaudited)
 
 
 
 
Net income
$
306

 
$
312

Other comprehensive income/(loss), net of tax (Note 10)
 
 
 
Foreign currency translation
(482
)
 
(82
)
Total other comprehensive income/(loss), net of tax
(482
)
 
(82
)
Comprehensive income/(loss)
(176
)
 
230

Less: Comprehensive income/(loss) attributable to noncontrolling interests
1

 
—

Comprehensive income/(loss) attributable to Ford Motor Credit Company
$
(177
)
 
$
230


The accompanying notes are part of the financial statements.




1
Item 1. Financial Statements (Continued)



FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)

 
March 31,
2015
 
December 31,
2014
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents
$
7,294

 
$
6,179

Marketable securities
6,264

 
3,258

Finance receivables, net (Note 2)
86,498

 
86,915

Net investment in operating leases (Note 3)
21,984

 
21,518

Notes and accounts receivable from affiliated companies
707

 
778

Derivative financial instruments (Note 7)
1,204

 
859

Other assets (Note 8)
2,424

 
2,601

Total assets
$
126,375

 
$
122,108

 
 
 
 
LIABILITIES
 
 
 
Accounts payable
 
 
 
Customer deposits, dealer reserves, and other
$
1,205

 
$
1,148

Affiliated companies
591

 
330

Total accounts payable
1,796

 
1,478

Debt (Note 9)
109,076

 
105,037

Deferred income taxes
2,185

 
1,849

Derivative financial instruments (Note 7)
297

 
167

Other liabilities and deferred income (Note 8)
1,858

 
2,210

Total liabilities
115,212

 
110,741

 
 
 
 
SHAREHOLDER’S INTEREST
 
 
 
Shareholder’s interest
5,227

 
5,227

Accumulated other comprehensive income (Note 10)
(323
)
 
160

Retained earnings
6,258

 
5,980

Total shareholder’s interest attributable to Ford Motor Credit Company
11,162

 
11,367

Shareholder’s interest attributable to noncontrolling interests
1

 
—

Total shareholder’s interest
11,163

 
11,367

Total liabilities and shareholder’s interest
$
126,375

 
$
122,108



The following table includes assets to be used to settle the liabilities of the consolidated variable interest entities (“VIEs”).  These assets and liabilities are included in the consolidated balance sheet above.  See Notes 5 and 6 for additional information on our VIEs.
 
March 31,
2015
 
December 31,
2014
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents
$
2,332

 
$
2,094

Finance receivables, net
40,964

 
39,522

Net investment in operating leases
10,115

 
9,631

Derivative financial instruments
68

 
27

 
 
 
 
LIABILITIES
 
 
 
Debt
$
39,409

 
$
37,156

Derivative financial instruments
38

 
22


The accompanying notes are part of the financial statements.

2
Item 1. Financial Statements (Continued)


FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER’S INTEREST
For the Periods Ended March 31, 2015 and 2014
(in millions, unaudited)

 
 
Shareholder’s Interest Attributable to Ford Motor Credit Company
 
 
 
 
 
 
Shareholder’s Interest
 
Accumulated Other Comprehensive Income (Note 10)
 
Retained Earnings
 
Total
 
Shareholder’s Interest Attributable to Non-Controlling Interests
 
Total Shareholder’s Interest
Balance at December 31, 2014
 
$
5,227

 
$
160

 
$
5,980

 
$
11,367

 
$
—

 
$
11,367

Net income
 
—

 
—

 
306

 
306

 
—

 
306

Other comprehensive income/(loss), net of tax
 
—

 
(483
)
 
—

 
(483
)
 
1

 
(482
)
Distributions to parent
 
—

 
—

 
(28
)
 
(28
)
 
—

 
(28
)
Balance at March 31, 2015
 
$
5,227

 
$
(323
)
 
$
6,258

 
$
11,162

 
$
1

 
$
11,163

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
 
$
5,217

 
$
717

 
$
4,670

 
$
10,604

 
$
—

 
$
10,604

Net income
 
—

 
—

 
312

 
312

 
—

 
312

Other comprehensive income/(loss), net of tax
 
—

 
(82
)
 
—

 
(82
)
 
—

 
(82
)
Distributions to parent
 
—

 
—

 
(28
)
 
(28
)
 
—

 
(28
)
Balance at March 31, 2014
 
$
5,217

 
$
635

 
$
4,954

 
$
10,806

 
$
—

 
$
10,806




The accompanying notes are part of the financial statements.


3
Item 1. Financial Statements (Continued)



FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Periods Ended March 31, 2015 and 2014
(in millions)

 
First Quarter
 
2015
 
2014
 
(unaudited)
Cash flows from operating activities
 
 
 
Net income
$
306

 
$
312

Adjustments to reconcile net income to net cash provided by operations
 
 
 
Provision for credit losses
67

 
31

Depreciation and amortization
1,029

 
912

Amortization of upfront interest supplements
(258
)
 
(247
)
Net change in deferred income taxes
366

 
149

Net change in other assets
45

 
190

Net change in other liabilities
67

 
252

All other operating activities
96

 
62

Net cash provided by/(used in) operating activities
1,718

 
1,661

 
 
 
 
Cash flows from investing activities
 
 
 
Purchases of finance receivables (excluding wholesale and other)
(8,492
)
 
(7,928
)
Collections of finance receivables (excluding wholesale and other)
7,694

 
7,429

Purchases of operating lease vehicles
(3,109
)
 
(3,074
)
Liquidations of operating lease vehicles
1,557

 
1,551

Net change in wholesale receivables and other
(1,047
)
 
(2,063
)
Net change in notes receivable from affiliated companies
—

 
31

Purchases of marketable securities
(4,550
)
 
(4,322
)
Proceeds from sales and maturities of marketable securities
1,542

 
3,440

Settlements of derivatives
43

 
(119
)
All other investing activities
59

 
49

Net cash provided by/(used in) investing activities
(6,303
)
 
(5,006
)
 
 
 
 
Cash flows from financing activities
 
 
 
Proceeds from issuances of long-term debt
13,452

 
11,698

Principal payments on long-term debt
(7,908
)
 
(8,060
)
Change in short-term debt, net
519

 
(1,179
)
Cash distributions to parent
(28
)
 
(28
)
All other financing activities
(36
)
 
(35
)
Net cash provided by/(used in) financing activities
5,999

 
2,396

Effect of exchange rate changes on cash and cash equivalents
(299
)
 
(34
)
 
 
 
 
Net increase/(decrease) in cash and cash equivalents
$
1,115

 
$
(983
)
 
 
 
 
Cash and cash equivalents at January 1
$
6,179

 
$
9,424

Net increase/(decrease) in cash and cash equivalents
1,115

 
(983
)
Cash and cash equivalents at March 31
$
7,294

 
$
8,441


The accompanying notes are part of the financial statements.


4
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


Table of Contents

Footnote
 
Page
Accounting Policies
Finance Receivables
Net Investment in Operating Leases
Allowance for Credit Losses
Transfers of Receivables
Variable Interest Entities
Derivative Financial Instruments and Hedging Activities
Other Assets and Other Liabilities and Deferred Income
Debt
Accumulated Other Comprehensive Income
Other Income
Fair Value Measurements
Segment Information
Commitments and Contingencies




5
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 1. ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information, and instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, these unaudited financial statements include all adjustments considered necessary for a fair statement of the results of operations and financial condition for interim periods for Ford Motor Credit Company LLC, its consolidated subsidiaries and consolidated VIEs in which Ford Motor Credit Company LLC is the primary beneficiary (collectively referred to herein as “Ford Credit,” “we,” “our,” or “us”). Results for interim periods should not be considered indicative of results for any other interim period or for the full year. Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2014 (“2014 Form 10-K Report”). We are an indirect, wholly owned subsidiary of Ford Motor Company (“Ford”).

Provision for Income Taxes

For interim tax reporting we estimate one single effective tax rate, which is applied to the year-to-date ordinary income/(loss). Tax effects of significant unusual or extraordinary items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.

Adoption of New Accounting Standards
Transfers and Servicing - Repurchase-to-Maturity Transactions, Repurchase Financings and Disclosures. On January 1, 2015, we adopted the new accounting standard that changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The new standard also requires additional disclosures for certain transfers of financial assets with agreements that both entitle and obligate the transferor to repurchase the transferred assets from the transferee. The adoption of this accounting standard did not impact our financial statements or financial statement disclosures.
 
Accounting Standards Issued But Not Yet Adopted

Internal-Use Software - Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. In April 2015, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard that provides guidance regarding whether a cloud computing arrangement includes a software license, which would impact the accounting for such an arrangement. The new accounting standard is effective as of January 1, 2016 and we are assessing the potential impact to our financial statements and financial statement disclosures.

Imputation of Interest - Simplifying the Presentation of Debt Issuance Costs. In April 2015, the FASB issued a new accounting standard that requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts or premiums. The new accounting standard is effective as of January 1, 2016, and early adoption is permitted. We are assessing the potential impact to our financial statements and financial statement disclosures.

Consolidation - Amendments to the Consolidation Analysis. In February 2015, the FASB issued a new accounting standard that makes targeted amendments to the present guidance. One of the amendments in the new standard affects the consolidation analysis performed by reporting entities that are involved with VIEs, particularly those that have decision maker or service provider fee arrangements and related party relationships. The new accounting standard is effective as of January 1, 2016 and we are assessing the potential impact to our financial statements and financial statement disclosures.

Extraordinary and Unusual Items - Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. In January 2015, the FASB issued a new accounting standard that eliminates the concept of extraordinary items and their segregation from the results of ordinary operations and expands presentation and disclosure guidance to include items that are both unusual in nature and occur infrequently. The new accounting standard is effective as of January 1, 2016 and we are assessing the potential impact to our financial statements and financial statement disclosures.

6
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 1. ACCOUNTING POLICIES (Continued)

Derivatives and Hedging - Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. In November 2014, the FASB issued a new accounting standard that requires an entity to determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument issued in the form of a share, including any embedded derivative features being evaluated for bifurcation. The new accounting standard is effective as of January 1, 2016 and we are assessing the potential impact to our financial statements and financial statement disclosures.

Going Concern - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. In August 2014, the FASB issued a new accounting standard that requires management to assess if there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim period. If conditions or events give rise to substantial doubt, disclosures are required. The new accounting standard is effective as of December 31, 2016 and we do not expect it to have an impact on our financial statement disclosures.

Consolidation - Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. In August 2014, the FASB issued a new accounting standard that provides an entity the option to elect to measure the financial assets and financial liabilities of a consolidated collateralized financing entity (“CFE”) at a value that is reflective of its economic interest in the CFE. The new accounting standard is effective as of January 1, 2016 and we do not expect it to have an impact on our financial statements or financial statement disclosures.

Stock Compensation - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. In June 2014, the FASB issued a new accounting standard that requires performance targets that could be achieved after the requisite service period be treated as performance conditions that affect the vesting of the award. The new accounting standard is effective as of January 1, 2016 and we do not expect it to have an impact on our financial statements or financial statement disclosures.

Revenue - Revenue from Contracts with Customers.  In May 2014, the FASB issued a new accounting standard that requires recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. The new standard supersedes virtually all present U.S. GAAP guidance on revenue recognition and requires the use of more estimates and judgments than the present standards as well as additional disclosures. The new accounting standard is effective as of January 1, 2017 and we are assessing the potential impact to our financial statements and financial statement disclosures.



7
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 2. FINANCE RECEIVABLES

We segment our finance receivables into “consumer” and “non-consumer” receivables. The receivables are generally secured by the vehicles, inventory, or other property being financed.

Consumer Segment. Receivables in this portfolio segment include products offered to individuals and businesses that finance the acquisition of Ford and Lincoln vehicles from dealers for personal or commercial use. Retail financing includes retail installment contracts for new and used vehicles and direct financing leases with retail customers, government entities, daily rental companies, and fleet customers.

Non-Consumer Segment. Receivables in this portfolio segment include products offered to automotive dealers and receivables purchased from Ford and its affiliates. The products include:

•
Dealer financing – includes wholesale loans to dealers to finance the purchase of vehicle inventory, also known as floorplan financing, as well as loans to dealers to finance working capital and improvements to dealership facilities, finance the purchase of dealership real estate, and finance other dealer programs. Wholesale financing is approximately 95% of our dealer financing.

•
Other financing – purchased receivables from Ford and its affiliates, primarily related to the sale of parts and accessories to dealers, receivables from Ford related loans, and certain used vehicles from daily rental fleet companies. These receivables are excluded from our credit quality reporting since the performance of this group of receivables is generally guaranteed by Ford.

Notes and accounts receivable from affiliated companies are presented separately on the balance sheet. These receivables are based on intercompany relationships and the balances are settled regularly. We do not assess these receivables for potential credit losses, nor are they subjected to aging analysis, credit quality reviews, or other formal assessments. As a result, Notes and accounts receivable from affiliated companies are not subject to the following disclosures contained herein.


8
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 2. FINANCE RECEIVABLES (Continued)

Finance Receivables, Net

Finance receivables, net were as follows (in millions):
 
 
March 31,
2015
 
December 31,
2014
Consumer
 
 
 
Retail financing, gross (a)
$
55,227

 
$
55,856

Less:  Unearned interest supplements (b)
(1,696
)
 
(1,760
)
Consumer finance receivables
53,531

 
54,096

 
 
 
 
Non-Consumer
 
 
 
Dealer financing (a)(c)
32,064

 
31,875

Other financing
1,217

 
1,265

Non-Consumer finance receivables
33,281

 
33,140

 
 
 
 
Total recorded investment (d)
$
86,812

 
$
87,236

 
 
 
 
Recorded investment in finance receivables (d)
$
86,812

 
$
87,236

Less:  Allowance for credit losses (e)
(314
)
 
(321
)
Finance receivables, net
$
86,498

 
$
86,915

 
 
 
 
Net finance receivables subject to fair value (f)
$
84,822

 
$
85,242

Fair Value
86,257

 
86,715

__________
(a)
At March 31, 2015 and December 31, 2014, includes consumer receivables of $25.9 billion and $24.4 billion, respectively, and non-consumer receivables of $21.3 billion and $21.8 billion, respectively, that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. The receivables are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay our other obligations or the claims of our other creditors. We hold the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions. See Note 5 for additional information.
(b)
Ford-sponsored special financing programs attributable to retail financing.
(c)
At March 31, 2015 and December 31, 2014, includes $643 million and $535 million, respectively, of dealer financing receivables with entities (primarily dealers) that are reported as consolidated subsidiaries of Ford. The associated vehicles that are being financed by us are reported as inventory on Ford’s balance sheet.
(d)
At March 31, 2015 and December 31, 2014, excludes $180 million and $192 million, respectively, of accrued uncollected interest, which we report in Other assets on our balance sheet.
(e)
See Note 4 for additional information related to our allowance for credit losses.
(f)
At March 31, 2015 and December 31, 2014, excludes $1.7 billion of certain receivables (primarily direct financing leases) that are not subject to fair value disclosure requirements.


 
 
 
 
 
 
 
 
 
 

9
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 2. FINANCE RECEIVABLES (Continued)

Aging

For all finance receivables, we define “past due” as any payment, including principal and interest, that is at least 31 days past the contractual due date. The recorded investment of consumer receivables greater than 90 days past due and still accruing interest was $11 million and $17 million at March 31, 2015 and December 31, 2014, respectively. The recorded investment of non-consumer receivables greater than 90 days past due and still accruing interest was de minimis and $3 million at March 31, 2015 and December 31, 2014, respectively.
 
The aging analysis of finance receivables balances was as follows (in millions):

 
March 31,
2015
 
December 31,
2014
Consumer
 
 
 
31-60 days past due
$
552

 
$
718

61-90 days past due
64

 
97

91-120 days past due
21

 
29

Greater than 120 days past due
49

 
52

Total past due
686

 
896

Current
52,845

 
53,200

Consumer finance receivables
53,531

 
54,096

 
 
 
 
Non-Consumer
 
 
 
Total past due
112

 
117

Current
33,169

 
33,023

Non-Consumer finance receivables
33,281

 
33,140

 
 
 
 
Total recorded investment
$
86,812

 
$
87,236


Credit Quality

Consumer Segment. When originating all classes of consumer receivables, we use a proprietary scoring system that measures the credit quality of the receivables using several factors, such as credit bureau information, consumer credit risk scores (e.g., FICO score), and contract characteristics. In addition to our proprietary scoring system, we consider other individual consumer factors, such as employment history, financial stability, and capacity to pay.

Subsequent to origination, we review the credit quality of retail financing based on customer payment activity. As each customer develops a payment history, we use an internally developed behavioral scoring model to assist in determining the best collection strategies, which allows us to focus collection activity on higher-risk accounts. These models are used to refine our risk-based staffing model to ensure collection resources are aligned with portfolio risk. Based on data from this scoring model, contracts are categorized by collection risk. Our collection models evaluate several factors, including origination characteristics, updated credit bureau data, and payment patterns.

Credit quality ratings for consumer receivables are based on our aging analysis. Refer to the aging table above. Consumer receivables credit quality ratings are as follows:

•
Pass – current to 60 days past due
•
Special Mention – 61 to 120 days past due and in intensified collection status
•
Substandard – greater than 120 days past due and for which the uncollectible portion of the receivables has already been charged off, as measured using the fair value of collateral






10
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 2. FINANCE RECEIVABLES (Continued)

Non-Consumer Segment. We extend credit to dealers primarily in the form of lines of credit to purchase new Ford and Lincoln vehicles as well as used vehicles. Payment is required when the dealer has sold the vehicle. Each non-consumer lending request is evaluated by taking into consideration the borrower’s financial condition and the underlying collateral securing the loan. We use a proprietary model to assign each dealer a risk rating. This model uses historical dealer performance data to identify key factors about a dealer that we consider most significant in predicting a dealer’s ability to meet its financial obligations. We also consider numerous other financial and qualitative factors of the dealer’s operations including capitalization and leverage, liquidity and cash flow, profitability, and credit history with ourselves and other creditors.

Dealers are assigned to one of four groups according to risk ratings as follows:

•
Group I – strong to superior financial metrics
•
Group II – fair to favorable financial metrics
•
Group III – marginal to weak financial metrics
•
Group IV – poor financial metrics, including dealers classified as uncollectible

We generally suspend credit lines and extend no further funding to dealers classified in Group IV.

We regularly review our model to confirm the continued business significance and statistical predictability of the factors and update the model to incorporate new factors or other information that improves its statistical predictability. In addition, we regularly audit dealer inventory and dealer sales records to verify that the dealer is in possession of the financed vehicles and is promptly paying each receivable following the sale of the financed vehicle. The frequency of on-site vehicle inventory audits depends on factors such as the dealer’s risk rating and our security position. Under our policies, on-site vehicle inventory audits of low-risk dealers are conducted only as circumstances warrant. Audits of higher-risk dealers are conducted with increased frequency based on risk ratings and our security position. We perform a credit review of each dealer at least annually and adjust the dealer’s risk rating, if necessary.

The credit quality of dealer financing receivables is evaluated based on our internal dealer risk rating analysis. A dealer has the same risk rating for its entire dealer financing regardless of the type of financing.
 
The credit quality analysis of our dealer financing receivables was as follows (in millions):
 
March 31,
2015
 
December 31,
2014
Dealer financing
 
 
 
Group I
$
24,533

 
$
23,641

Group II
6,075

 
6,360

Group III
1,355

 
1,787

Group IV
101

 
87

Total recorded investment
$
32,064

 
$
31,875


11
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 2. FINANCE RECEIVABLES (Continued)

Impaired Receivables

Impaired consumer receivables include accounts that have been rewritten or modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code that are considered to be Troubled Debt Restructurings (“TDRs”), as well as all accounts greater than 120 days past due. Impaired non-consumer receivables represent accounts with dealers that have weak or poor financial metrics or dealer financing that has been modified in TDRs. The recorded investment of consumer receivables that were impaired at March 31, 2015 and December 31, 2014 was $396 million, or 0.7% of consumer receivables, and $415 million, or 0.8% of consumer receivables, respectively. The recorded investment of non-consumer receivables that were impaired at March 31, 2015 and December 31, 2014 was $128 million, or 0.4% of non-consumer receivables, and $110 million, or 0.3% of non-consumer receivables, respectively. Impaired finance receivables are evaluated both collectively and specifically. See Note 4 for additional information related to the development of our allowance for credit losses.

The accrual of revenue is discontinued at the time a receivable is determined to be uncollectible. Accounts may be restored to accrual status only when a customer settles all past-due deficiency balances and future payments are reasonably assured. For receivables in non-accrual status, subsequent financing revenue is recognized only to the extent a payment is received. Payments are generally applied first to outstanding interest and then to the unpaid principal balance.

A restructuring of debt constitutes a TDR if we grant a concession to a debtor for economic or legal reasons related to the debtor’s financial difficulties that we otherwise would not consider. Consumer and non-consumer receivables that have a modified interest rate below market rate or that were modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code, except non-consumer receivables that are current with minimal risk of loss, are considered to be TDRs. We do not grant concessions on the principal balance of our receivables. If a receivable is modified in a reorganization proceeding, all payment requirements of the reorganization plan need to be met before remaining balances are forgiven. Finance receivables involved in TDRs are specifically assessed for impairment.


NOTE 3. NET INVESTMENT IN OPERATING LEASES

Net investment in operating leases consist primarily of lease contracts for vehicles with retail customers, daily rental companies, government entities, and fleet customers with terms of 60 months or less.

Net investment in operating leases were as follows (in millions):
 
March 31,
2015
 
December 31,
2014
Vehicles, at cost, including acquisition costs
$
25,687

 
$
24,952

Less: Accumulated depreciation
(3,662
)
 
(3,396
)
Net investment in operating leases before allowance for credit losses (a)
22,025

 
21,556

Less: Allowance for credit losses
(41
)
 
(38
)
Net investment in operating leases
$
21,984

 
$
21,518

__________
(a)
At March 31, 2015 and December 31, 2014, includes net investment in operating leases of $10.1 billion and $9.6 billion, respectively, that have been included in securitization transactions but continue to be reported in our consolidated financial statements. These net investment in operating leases are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay our other obligations or the claims of our other creditors. We hold the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions. See Note 5 for additional information.


 
 
 
 
 
 
 
 
 
 


12
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 4. ALLOWANCE FOR CREDIT LOSSES

An analysis of the allowance for credit losses related to finance receivables and net investment in operating leases for the periods ended March 31 (in millions) was as follows:
 
 
 
 
 
 
 
 
 
 
 
First Quarter 2015
 
Finance Receivables
 
Net Investment in Operating Leases
 
Total Allowance
 
Consumer
 
Non-Consumer
 
Total
 
 
Allowance for credit losses
 
 
 
 
 
 
 
 
 
Beginning balance
$
305

 
$
16

 
$
321

 
$
38

 
$
359

Charge-offs
(80
)
 
1

 
(79
)
 
(30
)
 
(109
)
Recoveries
30

 
2

 
32

 
15

 
47

Provision for credit losses
53

 
(4
)
 
49

 
18

 
67

Other (a)
(7
)
 
(2
)
 
(9
)
 
—

 
(9
)
Ending balance
$
301

 
$
13

 
$
314

 
$
41

 
$
355

 
 
 
 
 
 
 
 
 
 
Analysis of ending balance of allowance for credit losses
 
 
 
 
 
 
 
 
 
Collective impairment allowance
$
280

 
$
12

 
$
292

 
$
41

 
$
333

Specific impairment allowance
21

 
1

 
22

 
—

 
22

Ending balance
301

 
13

 
314

 
41

 
$
355

 
 
 
 
 
 
 
 
 
 
Analysis of ending balance of finance receivables and net investment in operating leases
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
53,135

 
33,153

 
86,288

 
22,025

 
 
Specifically evaluated for impairment
396

 
128

 
524

 
—

 
 
Recorded investment
53,531

 
33,281

 
86,812

 
22,025

 
 
 
 
 
 
 
 
 
 
 
 
Ending balance, net of allowance for credit losses
$
53,230

 
$
33,268

 
$
86,498

 
$
21,984

 
 
__________
(a)
Primarily represents amounts related to translation adjustments.
 
First Quarter 2014
 
Finance Receivables
 
Net Investment in Operating Leases
 
Total Allowance
 
Consumer
 
Non-Consumer
 
Total
 
 
Allowance for credit losses
 
 
 
 
 
 
 
 
 
Beginning balance
$
327

 
$
30

 
$
357

 
$
23

 
$
380

Charge-offs
(75
)
 
(2
)
 
(77
)
 
(28
)
 
(105
)
Recoveries
34

 
5

 
39

 
14

 
53

Provision for credit losses
23

 
(7
)
 
16

 
15

 
31

Other (a)
(2
)
 
1

 
(1
)
 
—

 
(1
)
Ending balance
$
307

 
$
27

 
$
334

 
$
24

 
$
358

 
 
 
 
 
 
 
 
 
 
Analysis of ending balance of allowance for credit losses
 
 
 
 
 
 
 
 
 
Collective impairment allowance
$
284

 
$
24

 
$
308

 
$
24

 
$
332

Specific impairment allowance
23

 
3

 
26

 
—

 
26

Ending balance
307

 
27

 
334

 
24

 
$
358

 
 
 
 
 
 
 
 
 
 
Analysis of ending balance of finance receivables and net investment in operating leases
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
50,115

 
33,749

 
83,864

 
18,856

 
 
Specifically evaluated for impairment
424

 
92

 
516

 
—

 
 
Recorded investment
50,539

 
33,841

 
84,380

 
18,856

 
 
 
 
 
 
 
 
 
 
 
 
Ending balance, net of allowance for credit losses
$
50,232

 
$
33,814

 
$
84,046

 
$
18,832

 
 
__________
(a)
Primarily represents amounts related to translation adjustments.

13
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 5. TRANSFERS OF RECEIVABLES

We securitize finance receivables and net investment in operating leases through a variety of programs using amortizing, variable funding, and revolving structures. We also sell finance receivables in structured financing transactions. Due to the similarities between securitization and structured financing, we refer to structured financings as securitization transactions. Our securitization programs are targeted to institutional investors in both public and private transactions in capital markets including the United States, Canada, several European countries, Mexico, and China.

We engage in securitization transactions to fund operations and to maintain liquidity. Our securitization transactions are recorded as asset-backed debt and the associated assets are not derecognized and continue to be included in our financial statements.

The finance receivables sold for legal purposes and net investment in operating leases included in securitization transactions are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions. They are not available to pay our other obligations or the claims of our other creditors. We hold the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions. The debt is the obligation of our consolidated securitization entities and not the obligation of Ford Credit or our other subsidiaries.

Most of these securitization transactions utilize VIEs. See Note 6 for more information concerning VIEs. The following tables show the assets and debt related to our securitization transactions that were included in our financial statements (in billions):

 
March 31, 2015
 
Cash and Cash Equivalents
 
Finance Receivables and Net Investment in Operating Leases (a)
 
Related Debt
 
Before Allowance
for Credit Losses
 
Allowance for
Credit Losses
 
After Allowance
for Credit Losses
 
VIE (b)
 
 
 
 
 
 
 
 
 
Retail financing
$
1.5

 
$
20.7

 
$
0.1

 
$
20.6

 
$
19.2

Wholesale financing
0.2

 
20.4

 
—

 
20.4

 
13.4

Finance receivables
1.7

 
41.1

 
0.1

 
41.0

 
32.6

Net investment in operating leases
0.6

 
10.1

 
—

 
10.1

 
6.8

Total VIE
$
2.3

 
$
51.2

 
$
0.1

 
$
51.1

 
$
39.4

 
 
 
 
 
 
 
 
 
 
Non-VIE
 
 
 
 
 
 
 
 
 
Retail financing
$
0.3

 
$
5.2

 
$
—

 
$
5.2

 
$
4.8

Wholesale financing
—

 
0.9

 
—

 
0.9

 
0.9

Finance receivables
0.3

 
6.1

 
—

 
6.1

 
5.7

Net investment in operating leases
—

 
—

 
—

 
—

 
—

Total Non-VIE
$
0.3

 
$
6.1

 
$
—

 
$
6.1

 
$
5.7

 
 
 
 
 
 
 
 
 
 
Total securitization transactions
 
 
 
 
 
 
 
 
 
Retail financing
$
1.8

 
$
25.9

 
$
0.1

 
$
25.8

 
$
24.0

Wholesale financing
0.2

 
21.3

 
—

 
21.3

 
14.3

Finance receivables
2.0

 
47.2

 
0.1

 
47.1

 
38.3

Net investment in operating leases
0.6

 
10.1

 
—

 
10.1

 
6.8

Total securitization transactions
$
2.6

 
$
57.3

 
$
0.1

 
$
57.2

 
$
45.1

__________
(a)
Unearned interest supplements and residual support are excluded from securitization transactions.
(b)
Includes assets to be used to settle the liabilities of the consolidated VIEs.

14
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 5. TRANSFERS OF RECEIVABLES (Continued)

 
December 31, 2014
 
Cash and Cash Equivalents
 
Finance Receivables and Net Investment in Operating Leases (a)
 
Related Debt
 
Before Allowance
for Credit Losses
 
Allowance for
Credit Losses
 
After Allowance
for Credit Losses
 
VIE (b)
 
 
 
 
 
 
 
 
 
Retail financing
$
1.4

 
$
18.8

 
$
0.1

 
$
18.7

 
$
17.3

Wholesale financing
0.3

 
20.8

 
—

 
20.8

 
13.3

Finance receivables
1.7

 
39.6

 
0.1

 
39.5

 
30.6

Net investment in operating leases
0.4

 
9.6

 
—

 
9.6

 
6.6

Total VIE
$
2.1

 
$
49.2

 
$
0.1

 
$
49.1

 
$
37.2

 
 
 
 
 
 
 
 
 
 
Non-VIE
 
 
 
 
 
 
 
 
 
Retail financing
$
0.3

 
$
5.6

 
$
—

 
$
5.6

 
$
5.2

Wholesale financing
—

 
1.0

 
—

 
1.0

 
0.9

Finance receivables
0.3

 
6.6

 
—

 
6.6

 
6.1

Net investment in operating leases
—

 
—

 
—

 
—

 
—

Total Non-VIE
$
0.3

 
$
6.6

 
$
—

 
$
6.6

 
$
6.1

 
 
 
 
 
 
 
 
 
 
Total securitization transactions
 
 
 
 
 
 
 
 
 
Retail financing
$
1.7

 
$
24.4

 
$
0.1

 
$
24.3

 
$
22.5

Wholesale financing
0.3

 
21.8

 
—

 
21.8

 
14.2

Finance receivables
2.0

 
46.2

 
0.1

 
46.1

 
36.7

Net investment in operating leases
0.4

 
9.6

 
—

 
9.6

 
6.6

Total securitization transactions
$
2.4

 
$
55.8

 
$
0.1

 
$
55.7

 
$
43.3

__________
(a)
Unearned interest supplements and residual support are excluded from securitization transactions.
(b)
Includes assets to be used to settle the liabilities of the consolidated VIEs.

Interest expense related to securitization debt for the periods ended March 31 was as follows (in millions):
 
First Quarter
 
2015
 
2014
VIE
$
130

 
$
126

Non-VIE
23

 
21

Total securitization transactions
$
153

 
$
147


Certain of our securitization entities enter into derivative transactions to mitigate interest rate exposure, primarily resulting from fixed-rate assets securing floating-rate debt and, in certain instances, currency exposure resulting from assets in one currency and debt in another currency. In many instances, the counterparty enters into offsetting derivative transactions with us to mitigate its interest rate risk resulting from derivatives with our securitization entities. These related derivatives are not the obligations of our securitization entities. See Note 7 for additional information regarding derivatives. Our exposures based on the fair value of derivative instruments with external counterparties related to securitization programs were as follows (in millions):
 
March 31, 2015
 
December 31, 2014
 
Derivative
Asset
 
Derivative
Liability
 
Derivative
Asset
 
Derivative
Liability
Derivatives of the VIEs
$
68

 
$
38

 
$
27

 
$
22

Derivatives related to the VIEs
30

 
16

 
16

 
7

Other securitization related derivatives
1

 
5

 
5

 
1

Total exposures related to securitization
$
99

 
$
59

 
$
48

 
$
30


15
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 5. TRANSFERS OF RECEIVABLES (Continued)

Derivative expense/(income) related to our securitization transactions for the periods ended March 31 was as follows (in millions):
 
First Quarter
 
2015
 
2014
Derivatives of the VIEs
$
(24
)
 
$
20

Derivatives related to the VIEs
(5
)
 
(6
)
Other securitization related derivatives
13

 
4

Total derivative expense/(income) related to securitization
$
(16
)
 
$
18



NOTE 6. VARIABLE INTEREST ENTITIES

A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. Nearly all of our VIEs are special purpose entities used for our securitizations.

We have the power to direct the activities of our special purpose entities when we have the ability to exercise discretion in the servicing of financial assets, issue additional debt, exercise a unilateral call option, add assets to revolving structures, or control investment decisions.

Assets recognized as a result of consolidating these VIEs do not represent additional assets that could be used to satisfy claims against our general assets. Conversely, liabilities recognized as a result of consolidating these VIEs do not represent additional claims on our general assets; rather, they represent claims against the specific assets of the consolidated VIEs.

VIEs of Which We Are the Primary Beneficiary

We use special purpose entities to issue asset-backed securities in transactions to public and private investors, bank conduits, and government-sponsored entities or others who obtain funding from government programs. We have deemed most of these special purpose entities to be VIEs. The asset-backed securities are backed by finance receivables and interests in net investments in operating leases. The assets continue to be consolidated by us. We retain interests in our securitization VIEs, including subordinated securities issued by the VIEs, rights to cash held for the benefit of the securitization investors, and rights to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions.

The transactions create and pass along risks to the variable interest holders, depending on the assets securing the debt and the specific terms of the transactions. We aggregate and analyze the asset-backed securitization transactions based on the risk profile of the product and the type of funding structure, including:

•
Retail financing – consumer credit risk and pre-payment risk
•
Wholesale financing – dealer credit risk and Ford risk, as the receivables owned by the VIEs primarily arise from the financing provided by us to Ford-franchised dealers; therefore, the collections depend upon the sale of Ford vehicles
•
Net investment in operating leases – vehicle residual value risk, consumer credit risk, and pre-payment risk

As residual interest holder, we are exposed to the underlying residual and credit risk of the collateral and are exposed to interest rate risk in some transactions. The amount of risk absorbed by our residual interests generally is represented by and limited to the amount of overcollateralization of the assets securing the debt and any cash reserves.




16
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 6. VARIABLE INTEREST ENTITIES (Continued)

We have no obligation to repurchase or replace any securitized asset that subsequently becomes delinquent in payment or otherwise is in default, except when representations and warranties about the eligibility of the securitized assets are breached, or when certain changes are made to the underlying asset contracts. Securitization investors have no recourse to us or our other assets and have no right to require us to repurchase the investments. We generally have no obligation to provide liquidity or contribute cash or additional assets to the VIEs and do not guarantee any asset-backed securities. We may be required to support the performance of certain securitization transactions, however, by increasing cash reserves.

VIEs that are exposed to interest rate or currency risk may reduce their risks by entering into derivative transactions. In certain instances, we have entered into offsetting derivative transactions with the VIE to protect the VIE from the risks that are not mitigated through the derivative transactions between the VIE and its external counterparty. In other instances, we have entered into derivative transactions with the counterparty to protect the counterparty from risks absorbed through its derivative transactions with the VIEs.

Although not contractually required, we regularly support our wholesale securitization programs by repurchasing receivables of a dealer from a VIE when the dealer’s performance is at risk, which transfers the corresponding risk of loss from the VIE to us. We also may contribute additional cash or wholesale receivables to be held by the VIE if the collateral falls below the required levels. The balances of cash held by the VIEs related to these contributions were $0 at March 31, 2015 and December 31, 2014, and ranged from $0 to $70 million during the first quarter of 2015.

See Note 5 for information on the financial position and financial performance of our VIEs and Notes 7 and 12 for additional information regarding derivatives.

VIEs of Which We Are Not the Primary Beneficiary

We have an investment in Forso Nordic AB, a joint venture determined to be a VIE of which we are not the primary beneficiary. The joint venture provides retail and dealer financing in its local markets and is financed by external debt and additional subordinated debt provided by the joint venture partner. The operating agreement indicates that the power to direct economically significant activities is shared with the joint venture partner, and the obligation to absorb losses or right to receive benefits resides primarily with the joint venture partner. Our investment in the joint venture is accounted for as an equity method investment and is included in Other assets. Our maximum exposure to any potential losses associated with this VIE is limited to our equity investment and amounted to $60 million and $66 million at March 31, 2015 and December 31, 2014, respectively.



17
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

In the normal course of business, our operations are exposed to global market risks, including the effect of changes in interest rates and foreign currency exchange rates. To manage these risks, we enter into highly effective derivative contracts. We have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging relationships are evaluated for effectiveness using regression analysis at the time they are designated and throughout the hedge period. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting.

Income Effect of Derivative Financial Instruments

The gains/(losses), by hedge designation, recorded in income for the periods ended March 31 were as follows (in millions):
 
First Quarter
 
2015
 
2014
Fair value hedges
 
 
 
Interest rate contracts
 
 
 
Net interest settlements and accruals excluded from the assessment of hedge effectiveness
$
88

 
$
69

Ineffectiveness (a)
6

 
5

Derivatives not designated as hedging instruments
 
 
 
Interest rate contracts
(43
)
 
(18
)
Foreign currency exchange contracts
65

 
(5
)
Cross-currency interest rate swap contracts
89

 
(5
)
Total
$
205

 
$
46

__________
(a)
For the first quarter of 2015 and 2014, hedge ineffectiveness reflects the net change in fair value on derivatives of $221 million gain and $105 million gain, respectively, and change in value on hedged debt attributable to the change in benchmark interest rates of $215 million loss and $100 million loss, respectively.

Balance Sheet Effect of Derivative Financial Instruments

Derivative financial instruments are recorded on the balance sheet at fair value, presented on a gross basis, and include an adjustment for non-performance risk. Notional amounts are presented on a gross basis. The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our financial risk exposure. We enter into master agreements with counterparties that may allow for netting of exposure in the event of default or termination of the counterparty agreement due to breach of contract.

18
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

The notional amount and estimated fair value of our derivative financial instruments were as follows (in millions):
 
March 31, 2015
 
December 31, 2014
 
Notional
 
Fair Value of Assets
 
Fair Value of Liabilities
 
Notional
 
Fair Value of Assets
 
Fair Value of Liabilities
Fair value hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
22,859

 
$
736

 
$
26

 
$
23,203

 
$
602

 
$
38

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
59,942

 
233

 
150

 
56,558

 
168

 
89

Foreign currency exchange contracts (a)
1,177

 
52

 
1

 
1,527

 
18

 
1

Cross-currency interest rate swap contracts
2,336

 
183

 
120

 
2,425

 
71

 
39

Total derivative financial instruments, gross
$
86,314

 
1,204

 
297

 
$
83,713

 
859

 
167

Counterparty netting and collateral (b)
 
 
(189
)
 
(189
)
 
 
 
(136
)
 
(136
)
Total derivative financial instruments, net


 
$
1,015

 
$
108

 


 
$
723

 
$
31

__________
(a)
Includes forward contracts between Ford Credit and an affiliated company.
(b)
At March 31, 2015 and December 31, 2014, we did not receive or pledge any cash collateral.





19
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 8. OTHER ASSETS AND OTHER LIABILITIES AND DEFERRED INCOME

Other assets and other liabilities and deferred income consist of various balance sheet items that are combined for financial statement presentation due to their respective materiality compared with other individual asset and liability items.

Other assets were as follows (in millions):
 
March 31,
2015
 
December 31,
2014
Accrued interest and other non-finance receivables
$
849

 
$
921

Collateral held for resale, at net realizable value
352

 
382

Restricted cash (a)
59

 
130

Deferred charges
272

 
268

Deferred charges – income taxes
170

 
185

Prepaid reinsurance premiums and other reinsurance receivables
415

 
401

Investment in non-consolidated affiliates
138

 
141

Property and equipment, net of accumulated depreciation (b)
119

 
120

Other
50

 
53

Total other assets
$
2,424

 
$
2,601

__________
(a)
Restricted cash primarily includes cash held to meet certain local governmental and regulatory reserve requirements and cash held under the terms of certain contractual agreements. Restricted cash does not include required minimum balances or cash securing debt issued through securitization transactions.
(b)
Accumulated depreciation was $325 million and $326 million at March 31, 2015 and December 31, 2014, respectively.

Other liabilities and deferred income were as follows (in millions):
 
March 31,
2015
 
December 31,
2014
Interest payable
$
557

 
$
587

Tax related payables to Ford and affiliated companies
330

 
625

Unrecognized tax benefits
90

 
91

Unearned insurance premiums
425

 
410

Other
456

 
497

Total other liabilities and deferred income
$
1,858

 
$
2,210



 


20
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 9. DEBT

We have a commercial paper program with qualified institutional investors. We also obtain other short-term funding from the issuance of demand notes to retail investors through our floating rate demand notes program. We have certain securitization programs that issue short-term asset-backed debt securities that are sold to institutional investors. Bank borrowings by several of our international affiliates in the ordinary course of business are an additional source of short-term funding. We obtain long-term debt funding through the issuance of a variety of unsecured and asset-backed debt securities in the U.S. and international capital markets.

Asset-backed debt issued in securitizations is the obligation of the consolidated securitization entity that issued the debt and is payable only out of collections on the underlying securitized assets and related enhancements. This asset-backed debt is not the obligation of Ford Credit or our other subsidiaries.

Debt is recorded on our balance sheet at par value adjusted for unamortized discount or premium (with the exception of fair value adjustments related to debt in designated hedge relationships). Debt due within one year at issuance is classified as short-term. Debt due after one year at issuance is classified as long-term. Discounts, premiums, and costs directly related to the issuance of debt generally are capitalized and amortized over the life of the debt or put date and recorded in Interest expense using the effective interest method. Gains and losses on the extinguishment of debt are recorded in Other income, net.

Interest rates and debt outstanding were as follows (in millions):
 
Interest Rates
 
 
 
 
Average Contractual
 
Average Effective
 
Debt
 
2015
 
2014
 
2015
 
2014
 
March 31,
2015
 
December 31,
2014
Short-term debt
 
 
 
 
 
 
 
 
 
 
 
Unsecured debt
 
 
 
 
 
 
 
 
 
 
 
Floating rate demand notes
 
 
 
 
 
 
 
 
$
5,731

 
$
5,559

Commercial paper
 
 
 
 
 
 
 
 
1,986

 
1,651

Other short-term debt
 
 
 
 
 
 
 
 
2,340

 
2,564

Asset-backed debt
 
 
 
 
 
 
 
 
1,541

 
1,377

Total short-term debt
1.8
%
 
1.9
%
 
1.8
%
 
1.9
%
 
11,598

 
11,151

Long-term debt
 
 
 
 
 
 
 
 
 
 
 
Unsecured debt
 
 
 
 
 
 
 
 
 
 
 
Notes payable within one year
 
 
 
 
 
 
 
 
7,845

 
9,102

Notes payable after one year
 
 
 
 
 
 
 
 
45,493

 
42,488

Asset-backed debt
 
 
 
 
 
 
 
 
 
 
 

Notes payable within one year
 
 
 
 
 
 
 
 
17,567

 
16,722

Notes payable after one year
 
 
 
 
 
 
 
 
25,999

 
25,197

Unamortized discount
 
 
 
 
 
 
 
 
(45
)
 
(51
)
Fair value adjustments
 
 
 
 
 
 
 
 
619

 
428

Total long-term debt
2.6
%
 
2.7
%
 
2.7
%
 
2.8
%
 
97,478

 
93,886

Total debt
2.5
%
 
2.6
%
 
2.6
%
 
2.7
%
 
$
109,076

 
$
105,037

 
 
 
 
 
 
 
 
 
 
 
 
Fair value of debt
 
 
 
 
 
 
 
 
$
111,268

 
$
107,190

Interest rate characteristics of debt payable after one year
 
 
 
 
 
 
 
 
 
 
 
Fixed interest rate
 
 
 
 
 
 
 
 
51,962

 
49,148

Variable interest rate (generally based on LIBOR or other short-term rates)
 
 
 
 
 
 
 
 
19,530

 
18,537

Total payable after one year
 
 
 
 
 
 
 
 
$
71,492

 
$
67,685



21
Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS


NOTE 9. DEBT (Continued)

With the exception of commercial paper, which is issued at a discount, the average contractual rates reflect the stated contractual interest rate. Average effective rates reflect the average contractual interest rate plus amortization of discounts, premiums, and issuance fees. Fair value adjustments relate to designated fair value hedges of unsecured debt.

The fair value of debt reflects interest accrued but not yet paid of $553 million and $586 million at March 31, 2015 and December 31, 2014, respectively. Interest accrued is reported in Other liabilities and deferred income for outside debt and Accounts payable - affiliated companies for debt with affiliated companies. The fair value of debt also includes $10.1 billion and $9.8 billion of short-term debt at March 31, 2015 and December 31, 2014, respectively, carried at cost which approximates fair value. See Note 12 for additional information.

Debt with affiliated companies included in the above table was as follows (in millions):
 
March 31,
2015
 
December 31,
2014
Other short-term debt
$
92

 
$
13

Notes payable within one year
202

 
307

Notes payable after one year
4

 
5

Total debt with affiliated companies
$
298

 
$
325


Debt Maturities. Short-term and long-term debt matures at various dates through 2048. At March 31, 2015, maturities were as follows (in millions):
 
2015 (a)
 
2016 (b)
 
2017
 
2018
 
2019
 
Thereafter (c)
 
Total
Unsecured debt
$
16,036

 
$
10,628

 
$
12,044

 
$
7,968

 
$
5,418

 
$
11,301

 
$
63,395

Asset-backed debt
14,204

 
14,632

 
8,477

 
2,265

 
2,906

 
2,623

 
45,107

Total
30,240

 
25,260

 
20,521

 
10,233

 
8,324

 
13,924

 
108,502

Unamortized discount
 
 
 
 
 
 
 
 
 
 
 
 
(45
)
Fair value adjustments
 
 
 
 
 
 
 
 
 
 
 
 
619

Total debt