FORD MOTOR CREDIT CO LLC - FORM 10-Q - April 28, 2016

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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, 2016
 

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 48 




FORD MOTOR CREDIT COMPANY LLC
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2016
 
 
 
 
 
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
(in millions)

 
For the periods ended March 31,
 
2016
 
2015
 
First Quarter
 
(unaudited)
Financing revenue
 
 
 
Operating leases
$
1,318

 
$
1,120

Retail financing
736

 
685

Dealer financing
440

 
374

Other
12

 
18

Total financing revenue
2,506

 
2,197

Depreciation on vehicles subject to operating leases
(1,014
)
 
(816
)
Interest expense
(646
)
 
(638
)
Net financing margin
846

 
743

Other revenue
 

 
 

Insurance premiums earned
39

 
31

Other income, net (Note 12)
63

 
54

Total financing margin and other revenue
948

 
828

Expenses
 

 
 

Operating expenses
294

 
272

Provision for credit losses (Note 5)
128

 
67

Insurance expenses
12

 
6

Total expenses
434

 
345

Income before income taxes
514

 
483

Provision for income taxes
156

 
177

Net income
$
358

 
$
306



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)

 
For the periods ended March 31,
 
2016
 
2015
 
First Quarter
 
(unaudited)
Net income
$
358

 
$
306

Other comprehensive income/(loss), net of tax (Note 11)
 
 
 
Foreign currency translation
172

 
(482
)
Total other comprehensive income/(loss), net of tax
172

 
(482
)
Comprehensive income/(loss)
530

 
(176
)
Less: Comprehensive income/(loss) attributable to noncontrolling interests
—

 
1

Comprehensive income/(loss) attributable to Ford Motor Credit Company
$
530

 
$
(177
)

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,
2016
 
December 31,
2015
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents (Note 2)
$
10,350

 
$
8,886

Marketable securities (Note 2)
4,872

 
2,723

Finance receivables, net (Note 3)
100,276

 
96,823

Net investment in operating leases (Note 4)
25,888

 
25,079

Notes and accounts receivable from affiliated companies
815

 
727

Derivative financial instruments (Note 8)
1,610

 
924

Other assets (Note 9)
2,363

 
2,286

Total assets
$
146,174

 
$
137,448

 
 
 
 
LIABILITIES
 
 
 
Accounts payable
 
 
 
Customer deposits, dealer reserves, and other
$
1,185

 
$
1,104

Affiliated companies
460

 
313

Total accounts payable
1,645

 
1,417

Debt (Note 10)
127,434

 
119,601

Deferred income taxes
2,946

 
2,808

Derivative financial instruments (Note 8)
204

 
243

Other liabilities and deferred income (Note 9)
1,701

 
1,665

Total liabilities
133,930

 
125,734

 
 
 
 
SHAREHOLDER’S INTEREST
 
 
 
Shareholder’s interest
5,227

 
5,227

Accumulated other comprehensive income/(loss) (Note 11)
(435
)
 
(607
)
Retained earnings
7,451

 
7,093

Total shareholder’s interest attributable to Ford Motor Credit Company
12,243

 
11,713

Shareholder’s interest attributable to noncontrolling interests
1

 
1

Total shareholder’s interest
12,244

 
11,714

Total liabilities and shareholder’s interest
$
146,174

 
$
137,448


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 6 and 7 for additional information on our VIEs.
 
March 31,
2016
 
December 31,
2015
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents
$
2,602

 
$
3,949

Finance receivables, net
50,035

 
45,902

Net investment in operating leases
13,273

 
13,309

Derivative financial instruments
51

 
85

 
 
 
 
LIABILITIES
 
 
 
Debt
$
43,258

 
$
43,086

Derivative financial instruments
26

 
19


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
(in millions, unaudited)

 
 
Shareholder’s Interest Attributable to Ford Motor Credit Company
 
 
 
 
 
 
Shareholder’s Interest
 
Accumulated Other Comprehensive Income/(Loss)
(Note 11)
 
Retained Earnings
 
Total
 
Shareholder’s Interest Attributable to Non-Controlling Interests
 
Total Shareholder’s Interest
Balance at December 31, 2015
 
$
5,227

 
$
(607
)
 
$
7,093

 
$
11,713

 
$
1

 
$
11,714

Net income
 
—

 
—

 
358

 
358

 
—

 
358

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

 
172

 
—

 
172

 
—

 
172

Distributions to parent
 
—

 
—

 
—

 
—

 
—

 
—

Balance at March 31, 2016
 
$
5,227

 
$
(435
)
 
$
7,451

 
$
12,243

 
$
1

 
$
12,244

 
 
 
 
 
 
 
 
 
 
 
 
 
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




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
(in millions)

 
For the periods ended March 31,
 
2016
 
2015
 
First Quarter
 
(unaudited)
Cash flows from operating activities
 
 
 
Net income
$
358

 
$
306

Adjustments to reconcile net income to net cash provided by operations
 
 
 
Provision for credit losses
128

 
67

Depreciation and amortization
1,209

 
1,029

Amortization of upfront interest supplements
(297
)
 
(258
)
Net change in deferred income taxes
107

 
366

Net change in other assets
(99
)
 
45

Net change in other liabilities
281

 
67

All other operating activities
116

 
96

Net cash provided by/(used in) operating activities
1,803

 
1,718

Cash flows from investing activities
 
 
 
Purchases of finance receivables (excluding wholesale and other)
(8,243
)
 
(8,492
)
Collections of finance receivables (excluding wholesale and other)
7,760

 
7,694

Purchases of operating lease vehicles
(3,558
)
 
(3,109
)
Liquidations of operating lease vehicles
1,913

 
1,557

Net change in wholesale receivables and other
(2,124
)
 
(1,047
)
Purchases of marketable securities
(2,582
)
 
(4,550
)
Proceeds from sales and maturities of marketable securities
453

 
1,542

Settlements of derivatives
(13
)
 
43

All other investing activities
(60
)
 
59

Net cash provided by/(used in) investing activities
(6,454
)
 
(6,303
)
Cash flows from financing activities
 
 
 
Proceeds from issuances of long-term debt
15,529

 
13,452

Principal payments on long-term debt
(9,216
)
 
(7,908
)
Change in short-term debt, net
(277
)
 
519

Cash distributions to parent
—

 
(28
)
All other financing activities
(44
)
 
(36
)
Net cash provided by/(used in) financing activities
5,992

 
5,999

Effect of exchange rate changes on cash and cash equivalents
123

 
(299
)
 
 
 
 
Net increase/(decrease) in cash and cash equivalents
$
1,464

 
$
1,115

 
 
 
 
Cash and cash equivalents at January 1
$
8,886

 
$
6,179

Net increase/(decrease) in cash and cash equivalents
1,464

 
1,115

Cash and cash equivalents at March 31
$
10,350

 
$
7,294


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
Cash, Cash Equivalents, and Marketable Securities
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/(Loss)
Other Income, Net
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, 2015 (“2015 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 infrequently occurring 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

We adopted the following standards during 2016, none of which have a material impact to our financial statements or financial statement disclosures:
Standard
 
 
Effective Date
2015-16
Business Combinations - Simplifying the Accounting for Measurement-Period Adjustments
 
January 1, 2016
2015-09
Insurance - Disclosures about Short-Duration Contracts
 
January 1, 2016
2015-05
Internal-Use Software - Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement
 
January 1, 2016
2015-02
Consolidation - Amendments to the Consolidation Analysis
 
January 1, 2016
2015-01
Extraordinary and Unusual Items - Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items
 
January 1, 2016
2014-12
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
 
January 1, 2016

Accounting Standards Issued But Not Yet Adopted

Accounting Standard Update (“ASU”) 2016-02, Leases.  In February 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard which provides guidance on the recognition, measurement, presentation and disclosure of leases. The new standard supersedes present U.S. GAAP guidance on leases and requires substantially all leases to be reported on the balance sheet as right-of-use assets and lease liabilities, as well as additional disclosures. The new standard is effective as of January 1, 2019, and early adoption is permitted.  We are assessing the potential impact to our financial statements and disclosures.

ASU 2014-09, 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 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 FASB has issued several updates to the standard which i) defer the original effective date from January 1, 2017 to January 1, 2018, while allowing for early adoption as of January 1, 2017 (ASU 2015-14); ii) clarify the application of the principal versus agent guidance (ASU 2016-08); and iii) clarify the guidance on inconsequential and perfunctory promises and licensing (ASU 2016-10). The new accounting standard will impact the timing of when certain arrangements are recognized as revenue as we move from a risk and rewards model to a control model. The new accounting standard is expected to have an impact to our income statement, balance sheet, and financial statement disclosures and we are reviewing our arrangements to evaluate the impact and method of adoption.

6
Item 1. Financial Statements (Continued)

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


NOTE 2. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

The following table categorizes the fair values of cash and cash equivalents and marketable securities measured at fair value on a recurring basis on our balance sheet (in millions):
 
Fair Value Level
 
March 31,
2016
 
December 31, 2015
Cash and cash equivalents
 
 
 
 
 
U.S. government
1
 
$
450

 
$
—

U.S. government agencies
2
 
25

 
—

Non-U.S. government and agencies
2
 
500

 
266

Corporate debt
2
 
50

 
—

Total marketable securities classified as cash equivalents
 
 
1,025

 
266

Cash, time deposits and money market funds
 
 
9,325

 
8,620

Total cash and cash equivalents
 
 
$
10,350

 
$
8,886

 
 
 
 
 
 
Marketable securities
 
 
 
 
 
U.S. government
1
 
$
1,594

 
$
298

U.S. government agencies
2
 
1,746

 
1,169

Non-U.S. government and agencies
2
 
1,194

 
832

Corporate debt
2
 
294

 
384

Other marketable securities
2
 
44

 
40

Total marketable securities
 
 
$
4,872

 
$
2,723





7
Item 1. Financial Statements (Continued)

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


NOTE 3. FINANCE RECEIVABLES

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

Finance receivables, net were as follows (in millions):
 
 
March 31,
2016
 
December 31,
2015
Consumer
 
 
 
Retail financing, gross
$
63,185

 
$
62,068

Unearned interest supplements from Ford and affiliated companies
(2,231
)
 
(2,119
)
Consumer finance receivables
60,954

 
59,949

 
 
 
 
Non-Consumer
 
 
 
Dealer financing
38,523

 
36,037

Other financing
1,209

 
1,210

Non-Consumer finance receivables
39,732

 
37,247

Total recorded investment
$
100,686

 
$
97,196

 
 
 
 
Recorded investment in finance receivables
$
100,686

 
$
97,196

Allowance for credit losses
(410
)
 
(373
)
Finance receivables, net
$
100,276

 
$
96,823

 
 
 
 
Net finance receivables subject to fair value (a)
$
98,286

 
$
95,008

Fair value
99,678

 
96,180

__________
(a)
At March 31, 2016 and December 31, 2015, excludes $2.0 billion and $1.8 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 categorized within Level 3 of the hierarchy.

Excluded from finance receivables at March 31, 2016 and December 31, 2015 was $219 million and $209 million, respectively, of accrued uncollected interest, which we report in Other assets on our balance sheet.

Included in recorded investment in finance receivables at March 31, 2016 and December 31, 2015 were consumer receivables of $30.7 billion and $27.6 billion, respectively, and non-consumer receivables of $26.8 billion and $26.1 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 the other obligations or the claims of Ford Credit’s other creditors. Ford Credit holds 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 6 for additional information).



 
 
 
 
 
 
 
 
 
 

8
Item 1. Financial Statements (Continued)

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


NOTE 3. 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 $16 million at March 31, 2016 and December 31, 2015. The recorded investment of non-consumer receivables greater than 90 days past due and still accruing interest was $1 million at March 31, 2016 and December 31, 2015.
 
The aging analysis of finance receivables balances was as follows (in millions):

 
March 31,
2016
 
December 31,
2015
Consumer
 
 
 
31-60 days past due
$
611

 
$
708

61-90 days past due
81

 
108

91-120 days past due
27

 
27

Greater than 120 days past due
40

 
38

Total past due
759

 
881

Current
60,195

 
59,068

Consumer finance receivables
60,954

 
59,949

 
 
 
 
Non-Consumer
 
 
 
Total past due
104

 
116

Current
39,628

 
37,131

Non-Consumer finance receivables
39,732

 
37,247

Total recorded investment
$
100,686

 
$
97,196


Credit Quality

Consumer Segment

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 less costs to sell

Non-Consumer Segment

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


9
Item 1. Financial Statements (Continued)

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


NOTE 3. FINANCE RECEIVABLES (Continued)
 
The credit quality analysis of our dealer financing receivables was as follows (in millions):
 
March 31,
2016
 
December 31,
2015
Dealer financing
 
 
 
Group I
$
29,334

 
$
27,054

Group II
7,204

 
7,185

Group III
1,857

 
1,687

Group IV
128

 
111

Total recorded investment
$
38,523

 
$
36,037


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, 2016 and December 31, 2015 was $373 million, or 0.6% of consumer receivables, and $375 million, or 0.6% of consumer receivables, respectively. The recorded investment of non-consumer receivables that were impaired at March 31, 2016 and December 31, 2015 was $149 million, or 0.4% of non-consumer receivables, and $134 million, or 0.4% of non-consumer receivables, respectively. Impaired finance receivables are evaluated both collectively and specifically.

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.


10
Item 1. Financial Statements (Continued)

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


NOTE 4. 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,
2016
 
December 31,
2015
Vehicles, at cost (a)
$
30,803

 
$
29,673

Accumulated depreciation
(4,862
)
 
(4,545
)
Net investment in operating leases before allowance for credit losses
25,941

 
25,128

Allowance for credit losses
(53
)
 
(49
)
Net investment in operating leases
$
25,888

 
$
25,079

__________
(a)
Includes interest supplements and residual support payments we receive on certain leasing transactions under agreements with Ford and affiliated companies, and other vehicle acquisition costs.

At March 31, 2016 and December 31, 2015, net investment in operating leases before allowance for credit losses includes $13.3 billion of net investment in operating leases 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 6 for additional information).
 
 
 
 
 
 
 
 
 
 

11
Item 1. Financial Statements (Continued)

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


NOTE 5. 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 2016
 
Finance Receivables
 
Net Investment in Operating Leases
 
Total Allowance
 
Consumer
 
Non-Consumer
 
Total
 
 
Allowance for credit losses
 
 
 
 
 
 
 
 
 
Beginning balance
$
357

 
$
16

 
$
373

 
$
49

 
$
422

Charge-offs
(102
)
 
1

 
(101
)
 
(40
)
 
(141
)
Recoveries
29

 
1

 
30

 
19

 
49

Provision for credit losses
102

 
1

 
103

 
25

 
128

Other (a)
4

 
1

 
5

 
—

 
5

Ending balance
$
390

 
$
20

 
$
410

 
$
53

 
$
463

Analysis of ending balance of allowance for credit losses
 
 
 
 
 
 
 
 
 
Collective impairment allowance
$
371

 
$
13

 
$
384

 
$
53

 
$
437

Specific impairment allowance
19

 
7

 
26

 
—

 
26

Ending balance
390

 
20

 
410

 
53

 
$
463

 
 
 
 
 
 
 
 
 
 
Analysis of ending balance of finance receivables and net investment in operating leases
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
60,581

 
39,583

 
100,164

 
25,941

 
 
Specifically evaluated for impairment
373

 
149

 
522

 
—

 
 
Recorded investment
60,954

 
39,732

 
100,686

 
25,941

 
 
 
 
 
 
 
 
 
 
 
 
Ending balance, net of allowance for credit losses
$
60,564

 
$
39,712

 
$
100,276

 
$
25,888

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

12
Item 1. Financial Statements (Continued)

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


NOTE 6. 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 7 for additional 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, 2016
 
Cash and Cash Equivalents
 
Finance Receivables and Net Investment in Operating Leases (a)
 
Related Debt (c)
 
Before Allowance
for Credit Losses
 
Allowance for
Credit Losses
 
After Allowance
for Credit Losses
 
VIE (b)
 
 
 
 
 
 
 
 
 
Retail financing
$
1.6

 
$
24.2

 
$
0.2

 
$
24.0

 
$
21.3

Wholesale financing
0.3

 
26.0

 
—

 
26.0

 
13.3

Finance receivables
1.9

 
50.2

 
0.2

 
50.0

 
34.6

Net investment in operating leases
0.7

 
13.3

 
—

 
13.3

 
8.7

Total VIE
$
2.6

 
$
63.5

 
$
0.2

 
$
63.3

 
$
43.3

 
 
 
 
 
 
 
 
 
 
Non-VIE
 
 
 
 
 
 
 
 
 
Retail financing
$
0.4

 
$
6.5

 
$
—

 
$
6.5

 
$
6.0

Wholesale financing
—

 
0.8

 
—

 
0.8

 
0.6

Finance receivables
0.4

 
7.3

 
—

 
7.3

 
6.6

Net investment in operating leases
—

 
—

 
—

 
—

 
—

Total Non-VIE
$
0.4

 
$
7.3

 
$
—

 
$
7.3

 
$
6.6

 
 
 
 
 
 
 
 
 
 
Total securitization transactions
 
 
 
 
 
 
 
 
 
Retail financing
$
2.0

 
$
30.7

 
$
0.2

 
$
30.5

 
$
27.3

Wholesale financing
0.3

 
26.8

 
—

 
26.8

 
13.9

Finance receivables
2.3

 
57.5

 
0.2

 
57.3

 
41.2

Net investment in operating leases
0.7

 
13.3

 
—

 
13.3

 
8.7

Total securitization transactions
$
3.0

 
$
70.8

 
$
0.2

 
$
70.6

 
$
49.9

__________
(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.
(c)
Includes unamortized discount and debt issuance costs.

13
Item 1. Financial Statements (Continued)

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


NOTE 6. TRANSFERS OF RECEIVABLES (Continued)

 
December 31, 2015
 
Cash and Cash Equivalents
 
Finance Receivables and Net Investment in Operating Leases (a)
 
Related Debt (c)
 
Before Allowance
for Credit Losses
 
Allowance for
Credit Losses
 
After Allowance
for Credit Losses
 
VIE (b)
 
 
 
 
 
 
 
 
 
Retail financing
$
1.4

 
$
20.9

 
$
0.1

 
$
20.8

 
$
18.9

Wholesale financing
2.0

 
25.1

 
—

 
25.1

 
15.3

Finance receivables
3.4

 
46.0

 
0.1

 
45.9

 
34.2

Net investment in operating leases
0.5

 
13.3

 
—

 
13.3

 
8.9

Total VIE
$
3.9

 
$
59.3

 
$
0.1

 
$
59.2

 
$
43.1

 
 
 
 
 
 
 
 
 
 
Non-VIE
 
 
 
 
 
 
 
 
 
Retail financing
$
0.4

 
$
6.7

 
$
—

 
$
6.7

 
$
6.1

Wholesale financing
—

 
1.0

 
—

 
1.0

 
0.8

Finance receivables
0.4

 
7.7

 
—

 
7.7

 
6.9

Net investment in operating leases
—

 
—

 
—

 
—

 
—

Total Non-VIE
$
0.4

 
$
7.7

 
$
—

 
$
7.7

 
$
6.9

 
 
 
 
 
 
 
 
 
 
Total securitization transactions
 
 
 
 
 
 
 
 
 
Retail financing
$
1.8

 
$
27.6

 
$
0.1

 
$
27.5

 
$
25.0

Wholesale financing
2.0

 
26.1

 
—

 
26.1

 
16.1

Finance receivables
3.8

 
53.7

 
0.1

 
53.6

 
41.1

Net investment in operating leases
0.5

 
13.3

 
—

 
13.3

 
8.9

Total securitization transactions
$
4.3

 
$
67.0

 
$
0.1

 
$
66.9

 
$
50.0

__________
(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.
(c)
Includes unamortized discount and debt issuance costs.

NOTE 7. VARIABLE INTEREST ENTITIES

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. 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.


14
Item 1. Financial Statements (Continued)

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


NOTE 7. 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.

See Note 6 for additional information on the financial position and financial performance of our VIEs.

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 $70 million and $66 million at March 31, 2016 and December 31, 2015, respectively.

NOTE 8. 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
 
2016
 
2015
Fair value hedges
 
 
 
Interest rate contracts
 
 
 
Net interest settlements and accruals excluded from the assessment of hedge effectiveness
$
99

 
$
88

Ineffectiveness (a)
17

 
6

Derivatives not designated as hedging instruments


 


Interest rate contracts
(48
)
 
(43
)
Foreign currency exchange contracts
33

 
65

Cross-currency interest rate swap contracts
195

 
89

Total
$
296

 
$
205

__________
(a)
For the first quarter of 2016 and 2015, hedge ineffectiveness reflects the net change in fair value on derivatives of $610 million gain and $221 million gain, respectively, and change in value on hedged debt attributable to the change in benchmark interest rates of $593 million loss and $215 million loss, respectively.


15
Item 1. Financial Statements (Continued)

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


NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Balance Sheet Effect of Derivative Financial Instruments

Derivative assets and liabilities are recorded on the balance sheet at fair value and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the parties and are not a direct measure of our financial exposure. We also enter into master agreements with counterparties that may allow for netting of exposure in the event of default or breach of the counterparty agreement.

The fair value of our derivative instruments and the associated notional amounts, presented gross, were as follows (in millions):
 
March 31, 2016
 
December 31, 2015
 
Notional
 
Fair Value of Assets
 
Fair Value of Liabilities
 
Notional
 
Fair Value of Assets
 
Fair Value of Liabilities
Fair value hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
32,843

 
$
1,184

 
$
—

 
$
28,964

 
$
670

 
$
16

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
65,538

 
182

 
159

 
62,638

 
159

 
112

Foreign currency exchange contracts (a)
2,138

 
49

 
8

 
1,713

 
22

 
4

Cross-currency interest rate swap contracts
3,701

 
195

 
37

 
3,137

 
73

 
111

Total derivative financial instruments, gross (b)
$
104,220

 
1,610

 
204

 
$
96,452

 
924

 
243

Counterparty netting and collateral (c)
 
 
(155
)
 
(155
)
 
 
 
(167
)
 
(167
)
Total derivative financial instruments, net


 
$
1,455

 
$
49

 


 
$
757

 
$
76

__________
(a)
Includes forward contracts between Ford Credit and an affiliated company.
(b)
All derivatives are categorized within Level 2 of the fair value hierarchy.
(c)
As of March 31, 2016 and December 31, 2015, we did not receive or pledge any cash collateral.

16
Item 1. Financial Statements (Continued)

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


NOTE 9. OTHER ASSETS AND OTHER LIABILITIES AND DEFERRED INCOME

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

Other assets were as follows (in millions):
 
March 31,
2016
 
December 31,
2015
Accrued interest and other non-finance receivables
$
753

 
$
763

Collateral held for resale, at net realizable value
524

 
498

Prepaid reinsurance premiums and other reinsurance receivables
481

 
472

Property and equipment, net of accumulated depreciation (a)
150

 
142

Deferred charges – income taxes
142

 
135

Investment in non-consolidated affiliates
138

 
133

Restricted cash (b)
77

 
56

Deferred charges
72

 
63

Other
26

 
24

Total other assets
$
2,363

 
$
2,286

__________
(a)
Accumulated depreciation was $338 million and $335 million at March 31, 2016 and December 31, 2015, respectively.
(b)
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.

Other liabilities and deferred income were as follows (in millions):
 
March 31,
2016
 
December 31,
2015
Interest payable
$
544

 
$
553

Unearned insurance premiums
493

 
484

Tax related payables to Ford and affiliated companies
107

 
105

Unrecognized tax benefits
78

 
75

Other
479

 
448

Total other liabilities and deferred income
$
1,701

 
$
1,665



 


17
Item 1. Financial Statements (Continued)

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


NOTE 10. DEBT

Debt outstanding and interest rates were as follows (in millions):
 
 
 
 
 
Interest Rates
 
Debt
 
Average Contractual
 
Average Effective
 
March 31,
2016
 
December 31,
2015
 
2016
 
2015
 
2016
 
2015
Short-term debt
 
 
 
 
 
 
 
 
 
 
 
Unsecured debt
 
 
 
 
 
 
 
 
 
 
 
Floating rate demand notes
$
5,992

 
$
5,926

 
 
 
 
 
 
 
 
Commercial paper
1,960

 
1,722

 
 
 
 
 
 
 
 
Other short-term debt
2,944

 
2,708

 
 
 
 
 
 
 
 
Asset-backed debt
1,064

 
1,855

 
 
 
 
 
 
 
 
Total short-term debt
11,960

 
12,211

 
1.8
%
 
1.6
%
 
1.8
%
 
1.6
%
Long-term debt
 
 
 
 
 
 
 
 
 
 
 
Unsecured debt
 
 
 
 
 
 
 
 
 
 
 
Notes payable within one year
13,668

 
10,254

 
 
 
 
 
 
 
 
Notes payable after one year
52,151

 
48,672

 
 
 
 
 
 
 
 
Asset-backed debt (a)
 
 
 
 
 
 
 
 
 
 
 
Notes payable within one year
20,231

 
18,855

 
 
 
 
 
 
 
 
Notes payable after one year
28,638

 
29,390

 
 
 
 
 
 
 
 
Unamortized discount
(22
)
 
(25
)
 
 
 
 
 
 
 
 
Unamortized issuance costs
(238
)
 
(214
)
 
 
 
 
 
 
 
 
Fair value adjustments (b)
1,046

 
458

 
 
 
 
 
 
 
 
Total long-term debt
115,474

 
107,390

 
2.4
%
 
2.3
%
 
2.5
%
 
2.4
%
Total debt
$
127,434

 
$
119,601

 
2.3
%
 
2.2
%
 
2.4
%
 
2.3
%
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of debt (c)
$
128,701

 
$
120,546

 
 
 
 
 
 
 
 
__________
(a)
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.
(b)
Adjustments related to designated fair value hedges of unsecured debt.
(c)
The fair value of debt includes $10.9 billion and $10.4 billion of short-term debt at March 31, 2016 and December 31, 2015, respectively, carried at cost, which approximates fair value. All other debt is categorized within Level 2 of the fair value hierarchy.

NOTE 11. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

The changes in the balance of Accumulated Other Comprehensive Income/(Loss) (“AOCI”) attributable to Ford Credit for the periods ended March 31 were as follows (in millions):
 
First Quarter
 
2016
 
2015
Foreign currency translation
 
 
 
Beginning balance
$
(607
)
 
$
160

Net gain/(loss) on foreign currency translation
172

 
(483
)
Other comprehensive income/(loss), net of tax
172

 
(483
)
Ending balance
$
(435
)
 
$
(323
)
 
 
 
 
Total AOCI ending balance at March 31
$
(435
)
 
$
(323
)


18
Item 1. Financial Statements (Continued)

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


NOTE 12. OTHER INCOME, NET

Other income consists of various line items that are combined on the income statement due to their respective materiality compared with other individual income and expense items.

The amounts included in Other income, net were as follows for the periods ended March 31 (in millions):
 
First Quarter
 
2016
 
2015
Gains/(Losses) on derivatives
$
199

 
$
115

Currency revaluation gains/(losses)
(219
)
 
(151
)
Interest and investment income
28

 
25

Insurance fee income
21

 
16

Other
34

 
49

Total other income, net
$
63

 
$
54


NOTE 13. SEGMENT INFORMATION

We divide our business segments based on geographic regions: North America (“North America Segment”) and 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.

Key operating data for our business segments for the periods ended or at March 31 were as follows (in millions):

 
 
 
 
 
Unallocated/Eliminations
 
 
 
North
America
Segment
 
International
Segment
 
Unallocated
Risk Management
 
Adjustment to
Receivables (a)
 
Total Unallocated/Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
First Quarter 2016
 
 
 
 
 
 
 
 
 
 
 
Total revenue (b)
$
2,202

 
$
413

 
$
(7
)
 
$
—

 
$
(7
)
 
$
2,608

Income before income taxes
394

 
127

 
(7
)
 
—

 
(7
)
 
514

Other disclosures:
 
 
 
 
 
 
 
 
 
 
 
Depreciation on vehicles subject to operating leases
1,008

 
6

 
—

 
—

 
—

 
1,014

Interest expense
503

 
143

 
—

 
—

 
—

 
646

Provision for credit losses
109

 
19

 
—

 
—

 
—

 
128

Net finance receivables and net investment in operating leases
105,958

 
25,872

 
—

 
(5,666
)
 
(5,666
)
 
126,164

Total assets
116,092

 
30,082

 
—

 
—

 
—

 
146,174

 
 
 
 
 
 
 
 
 
 
 
 
First Quarter 2015
 
 
 
 
 
 
 
 
 
 
 
Total revenue (b)
$
1,897

 
$
410

 
$
(25
)
 
$
—

 
$
(25
)
 
$
2,282

Income before income taxes
379

 
129

 
(25
)
 
—

 
(25
)
 
483

Other disclosures:
 
 
 
 
 
 
 
 
 
 
 
Depreciation on vehicles subject to operating leases
811

 
5

 
—

 
—

 
—