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EX-12 - EXHIBIT 12 - FORD MOTOR CREDIT CO LLCa6497558ex12.htm
EX-15 - EXHIBIT 15 - FORD MOTOR CREDIT CO LLCa6497558ex15.htm
EX-32.2 - EXHIBIT 32.2 - FORD MOTOR CREDIT CO LLCa6497558ex32-2.htm
EX-31.2 - EXHIBIT 31.2 - FORD MOTOR CREDIT CO LLCa6497558ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - FORD MOTOR CREDIT CO LLCa6497558ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - FORD MOTOR CREDIT CO LLCa6497558ex32-1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
 
OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the quarterly period ended September 30, 2010

 

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)

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

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.
þYes  o No

Indicate by check mark whether the registrant has submitted electronically and posted on its 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).
o 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
   (Do not check if a smaller reporting company)
 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 APPEARS AT PAGE 58
 
 
 
 
PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS
For the Periods Ended September 30, 2010 and 2009
(in millions)

   
Third Quarter
   
Nine Months
 
   
2010
   
2009
   
2010
   
2009
 
Financing revenue
                       
Operating leases
  $ 741     $ 1,168     $ 2,593     $ 3,854  
Retail
    561       750       1,778       2,266  
Interest supplements and other support costs earned
from affiliated companies
    789       917       2,514       2,813  
Wholesale
    220       188       661       709  
Other
    15       18       47       60  
Total financing revenue
    2,326       3,041       7,593       9,702  
Depreciation on vehicles subject to operating leases
    (404 )     (842 )     (1,520 )     (3,200 )
Interest expense
    (1,025 )     (1,259 )     (3,238 )     (3,969 )
Net financing margin
    897       940       2,835       2,533  
Other revenue
                               
Insurance premiums earned, net
    25       20       75       76  
Other income, net (Note 13)
    75       144       210       574  
Total financing margin and other revenue
    997       1,104       3,120       3,183  
Expenses
                               
Operating expenses
    271       306       851       956  
Provision for credit losses (Note 4)
    (53 )     111       (255 )     893  
Insurance expenses
    13       10       42       47  
Total expenses
    231       427       638       1,896  
Income before income taxes
    766       677       2,482       1,287  
Provision for income taxes
    269       250       901       462  
Income from continuing operations
    497       427       1,581       825  
Gain on disposal of discontinued operations (Note 12)
                      2  
Net income
  $ 497     $ 427     $ 1,581     $ 827  


The accompanying notes are an integral part of the financial statements.
 
 
1

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(in millions)

   
September 30,
   
December 31,
 
   
2010
   
2009
 
ASSETS
           
Cash and cash equivalents
  $ 8,763     $ 10,882  
Marketable securities
    11,537       6,864  
Finance receivables, net (Note 2)
    72,102       77,968  
Net investment in operating leases (Note 3)
    10,461       14,578  
Notes and accounts receivable from affiliated companies
    977       1,090  
Derivative financial instruments (Note 11)
    1,683       1,862  
Other assets (Note 7)
    3,096       4,100  
Total assets
  $ 108,619     $ 117,344  
                 
LIABILITIES AND SHAREHOLDER’S INTEREST
               
Liabilities
               
Accounts payable
               
Customer deposits, dealer reserves and other
  $ 1,266     $ 1,082  
Affiliated companies
    1,478       1,145  
Total accounts payable
    2,744       2,227  
Debt (Note 8)
    88,473       96,333  
Deferred income taxes
    1,760       1,816  
Derivative financial instruments (Note 11)
    662       1,179  
Other liabilities and deferred income (Note 7)
    4,047       4,809  
Total liabilities
    97,686       106,364  
                 
Shareholder’s interest
               
Shareholder’s interest
    5,274       5,149  
Accumulated other comprehensive income
    799       1,052  
Retained earnings (Note 9)
    4,860       4,779  
Total shareholder’s interest
    10,933       10,980  
Total liabilities and shareholder’s interest
  $ 108,619     $ 117,344  
 

The following table includes assets to be used to settle the liabilities of the consolidated variable interest entities (“VIEs”).  These assets and liabilities are included in the consolidated balance sheet above.  See Notes 5 and 6 for additional information on our VIEs:

   
September 30,
   
December 31,
 
   
2010
   
2009
 
Cash and cash equivalents
  $ 4,385     $ 4,895  
Finance receivables, net
    52,827       57,353  
Net investment in operating leases
    6,783       10,246  
Derivative financial instruments assets
    24       55  
Debt
    43,203       46,153  
Derivative financial instruments liabilities
    327       528  
                 

The accompanying notes are an integral part of the financial statements.
 
 
2

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Periods Ended September 30, 2010 and 2009
(in millions)

   
Third Quarter
   
Nine Months
 
   
2010
   
2009
   
2010
   
2009
 
Net income
  $ 497     $ 427     $ 1,581     $ 827  
Other comprehensive income/(loss), net of tax:
                               
Foreign currency translation (a)
    413       186       (253 )     585  
Change in value of retained interests in securitized assets
    0       1       0       (1 )
Total other comprehensive income/(loss)
    413       187       (253 )     584  
Comprehensive income
  $ 910     $ 614     $ 1,328     $ 1,411  
                                 
(a)  
We recorded a $100 million and a $125 million out-of-period adjustment during the third quarter of 2010 and the first nine months of 2010, respectively, which decreased Accumulated other comprehensive income (foreign currency translation) and increased Shareholder’s interest. This adjustment did not impact our Total shareholder’s interest on our balance sheet. The impact on previously issued annual and interim financial statements was not material.
 
The accompanying notes are an integral 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 September 30, 2010 and 2009
(in millions)

   
Nine Months
 
   
2010
   
2009
 
Cash flows from operating activities
           
Net income
  $ 1,581     $ 827  
Adjustments to reconcile net income to net cash provided by operations
               
Provision for credit losses
    (255 )     893  
Depreciation and amortization
    1,813       3,667  
Amortization of upfront interest supplements
    (1,347 )     (1,321 )
Net change in deferred income taxes
    (23 )     (675 )
Net change in other assets
    1,608       2,091  
Net change in other liabilities
    431       251  
All other operating activities
    (267 )     (704 )
Net cash provided by operating activities
    3,541       5,029  
Cash flows from investing activities
               
Purchases of finance receivables (other than wholesale)
    (17,195 )     (16,943 )
Collections of finance receivables (other than wholesale)
    21,984       24,281  
Purchases of operating lease vehicles
    (3,790 )     (2,344 )
Liquidations of operating lease vehicles
    6,493       5,798  
Net change in wholesale receivables
    747       9,687  
Net change in notes receivable from affiliated companies
    (29 )     161  
Purchases of marketable securities
    (38,026 )     (22,082 )
Proceeds from sales and maturities of marketable securities
    33,415       21,112  
Proceeds from sales of businesses
          168  
Settlements of derivatives
    42       479  
All other investing activities
    23       54  
Net cash provided by investing activities
    3,664       20,371  
Cash flows from financing activities
               
Proceeds from issuances of long-term debt
    23,399       23,904  
Principal payments on long-term debt
    (30,115 )     (42,501 )
Change in short-term debt, net
    (814 )     (5,666 )
Cash distributions (a)
    (1,500 )     (400 )
All other financing activities
    (165 )     (549 )
Net cash used in financing activities
    (9,195 )     (25,212 )
Effect of exchange rate changes on cash and cash equivalents
    (129 )     265  
Cumulative correction of a prior period error (b)
          (630 )
                 
Total cash flows from operations
    (2,119 )     (177 )
                 
Cash and cash equivalents, beginning of period
  $ 10,882     $ 15,473  
Change in cash and cash equivalents
    (2,119 )     (177 )
Cash and cash equivalents, end of period
  $ 8,763     $ 15,296  
 
(a) 
See Note 9 for information regarding $1.1 billion of non-cash distributions in the first quarter of 2009. 
(b)
In the first quarter of 2009, we recorded a $630 million cumulative adjustment to correct for the overstatement of cash and cash equivalents and certain accounts payable that originated in prior periods. The impact on previously issued annual and interim financial statements was not material.
 
The accompanying notes are an integral 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

Note
 
Page
Note 1
Accounting Policies
6
Note 2
Finance Receivables
7
Note 3
Net Investment in Operating Leases
8
Note 4
Allowance for Credit Losses
9
Note 5
Transfers of Receivables
9
Note 6
Variable Interest Entities
13
Note 7
Other Assets and Other Liabilities and Deferred Income
15
Note 8
Debt
16
Note 9
Retained Earnings
17
Note 10
Fair Value Measurements
18
Note 11
Derivative Financial Instruments and Hedging Activities
25
Note 12
Divestitures and Other Actions
27
Note 13
Other Income
28
Note 14
Employee Separation Actions
29
Note 15
Segment Information
30
Note 16
Commitments and Contingencies
32

 
 
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, 2009 (“2009 10-K Report”).  We are an indirect, wholly owned subsidiary of Ford Motor Company (“Ford”).

We reclassified certain prior year amounts in our consolidated financial statements to conform to current year presentation.

Interest Supplements and Other Support Costs Earned from Affiliated Companies

As of January 1, 2008, to reduce ongoing obligations to us and to be consistent with general industry practice, Ford began paying interest supplements and residual value support to us at the time we purchase eligible contracts from dealers.  Finance receivables are reported at their outstanding balance, including origination cost and late charges, net of unearned income and unearned interest supplements received from Ford and other affiliates.  The amount of unearned interest supplements for finance receivables was about $2 billion and $1.9 billion at September 30, 2010 and December 31, 2009, respectively.  Net investment in operating leases are recorded at cost and the vehicles are depreciated on a straight-line basis over the lease term to the estimated residual value.  Unearned interest supplements and residual support payments received from Ford and other affiliates for investments in operating leases are recorded in Other liabilities and deferred income.  The amount of unearned interest supplements and residual support payments for net investment in operating leases was $878 million and $1.1 billion at September 30, 2010 and December 31, 2009, respectively.

At September 30, 2010, in the United States and Canada, Ford is obligated to pay us $381 million of interest supplements (including supplements related to sold receivables) and $59 million of residual value support over the terms of the related finance contracts, compared with about $1 billion of interest supplements and $180 million of residual value support at December 31, 2009, in each case for contracts purchased prior to January 1, 2008.  The unpaid interest supplements and residual value support obligations on these contracts will continue to decline as the contracts liquidate.

Provision for Income Taxes

The provision for income taxes is computed by applying our estimated annual effective tax rate to year-to-date income before taxes.

Accounting Standards Issued Not Yet Adopted
 
In July 2010, the Financial Accounting Standards Board (“FASB”) issued a new standard requiring expanded disclosures about the credit quality of financing receivables and the allowance for credit losses.  The new standard requires disaggregation of disclosures by portfolio segment or by class of financing receivable, and provides additional implementation guidance for determining the level of disaggregation of information.  The standard also requires new disclosures on credit quality indicators, past due information, and modifications of financing receivables.  The standard is effective for us as of December 31, 2010.

 
6

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 2.  FINANCE RECEIVABLES

We offer a wide variety of automotive financing products to and through automotive dealers throughout the world.  Our finance receivables fall into three categories:

 
Retail financing purchasing retail installment sale and direct financing lease contracts from dealers for new and used vehicles with retail customers, daily rental companies, government entities, and fleet customers;
 
Wholesale financing making loans to dealers to finance the purchase of vehicle inventory, also known as floorplan financing; and
 
Other financing making loans to dealers for improvements to dealership facilities, working capital, and the purchase and financing of dealership real estate.  Other financing also includes purchasing certain receivables generated by Ford, primarily in connection with the delivery of vehicle inventories from Ford, the sale of parts and accessories by Ford to dealers and other receivables generated by Ford.

Finance receivables, net

Net finance receivables at September 30, 2010 and December 31, 2009 were as follows (in millions):

   
September 30,
2010
   
December 31,
2009
 
Retail (including direct financing leases)
  $ 51,110     $ 56,308  
Wholesale
    21,449       22,453  
Other
    2,408       2,474  
Total finance receivables, net of unearned income (a)(b)
    74,967       81,235  
Less:  Unearned interest supplements
    (1,997 )     (1,932 )
Less:  Allowance for credit losses
    (868 )     (1,335 )
Finance receivables, net
  $ 72,102     $ 77,968  
                 
Net finance receivables subject to fair value (c)
  $ 70,415     $ 75,584  
Fair value
    72,333       76,807  
 
(a)
At September 30, 2010 and December 31, 2009, includes $570 million and $647 million, respectively, of primarily wholesale receivables with entities that are reported as consolidated subsidiaries of Ford.  The consolidated subsidiaries include dealerships that are partially owned by Ford and consolidated as VIEs and also certain overseas affiliates.  The associated vehicles that are being financed by us are reported as inventory on Ford’s balance sheet.
(b)
At September 30, 2010 and December 31, 2009, includes finance receivables of $57.5 billion and $64.4 billion, respectively, that have been sold for legal purposes in securitization transactions but continue to be included in our consolidated financial statements, of which $108 million is reported as inventory by Ford at September 30, 2010.  The receivables are available only for payment of the debt and other obligations issued or arising in the securitization transactions; they are not available to pay our other obligations or the claims of our other creditors.  We hold the right to the excess cash flows not needed to pay the debt and other obligations issued or arising in each of these securitization transactions.  Refer to Note 5 for additional information.
(c)
At September 30, 2010 and December 31, 2009, excludes $1.7 billion and $2.4 billion, respectively, of certain receivables (primarily direct financing leases) that are not subject to fair value disclosure requirements.  See Note 10 for fair value methodology.
 
 
7

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 3.  NET INVESTMENT IN OPERATING LEASES

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

Net investment in operating leases

Net investment in operating leases at September 30, 2010 and December 31, 2009 were as follows (in millions):

   
September 30,
2010
   
December 31,
2009
 
Vehicles, at cost, including initial direct costs
  $ 15,124     $ 20,983  
Less:  Accumulated depreciation
    (4,558 )     (6,191 )
Net investment in operating leases before
allowance for credit losses (a)
    10,566       14,792  
Less:  Allowance for credit losses
    (105 )     (214 )
Net investment in operating leases
  $ 10,461     $ 14,578  
 
(a)
At September 30, 2010 and December 31, 2009, includes net investment in operating leases of about $6.8 billion and $10.4 billion, respectively, that have been included in securitization transactions but continue to be included in our consolidated financial statements. These net investment in operating leases are available only for payment of the debt and other obligations issued or arising in the securitization transactions; they are not available to pay our other obligations or the claims of our other creditors until the associated debt or other obligations are satisfied. Refer to Note 5 for additional information.
 
 
8

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 4.  ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses is our estimate of the probable credit losses inherent in finance receivables and operating leases at the date of the balance sheet.  Consistent with our normal practices and policies, we assess the adequacy of our allowance for credit losses quarterly and regularly evaluate the assumptions and models used in establishing the allowance.  Because credit losses can vary substantially over time, estimating credit losses requires a number of assumptions about matters that are uncertain.

Allowance for Credit Losses

Following is an analysis of the allowance for credit losses related to finance receivables, investment in direct financing leases, and investment in operating leases for the periods ended September 30 (in millions):

   
Third Quarter
   
Nine Months
 
   
2010
   
2009
   
2010
   
2009
 
Balance, beginning of period
  $ 1,104     $ 1,846     $ 1,549     $ 1,668  
Provision for credit losses
    (53 )     111       (255 )     893  
Total charge-offs and recoveries
                               
Charge-offs
    (189 )     (346 )     (637 )     (1,172 )
Recoveries
    94       106       323       315  
Net charge-offs
    (95 )     (240 )     (314 )     (857 )
Other changes, principally amounts related to translation adjustments and finance receivables sold
    17       (2 )     (7 )     11  
Balance, end of period
  $  973     $ 1,715     $ 973     $ 1,715  

    The allowance for credit losses is estimated using a combination of models and management judgment, and is based on such factors as portfolio quality, historical loss performance, and receivable levels.  At September 30, 2010, our allowance for credit losses includes about $10 million which was based on management’s judgment regarding higher retail loss assumptions in Spain compared with historical trends used in our models.  At September 30, 2009, our allowance for credit losses included about $260 million which was based on management’s judgment regarding higher retail installment and lease repossession assumptions and higher wholesale and dealer loan default assumptions.
 
NOTE 5.  TRANSFERS OF RECEIVABLES

We securitize finance receivables and net investments in operating leases through a variety of programs, utilizing 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 many different investors in both public and private transactions in capital markets worldwide.

We adopted the FASB’s new accounting standard related to transfers of financial assets on January 1, 2010.  The standard requires greater transparency about transfers of financial assets and a company’s continuing involvement in the transferred financial assets.  The standard also removes the concept of a qualifying special-purpose entity from GAAP and changes the requirements for derecognizing financial assets.  This new standard did not have a material impact on our financial condition, results of operations and financial statement disclosures.

 
9

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 5.  TRANSFERS OF RECEIVABLES (Continued)

On-Balance Sheet Securitization Transactions

We transfer finance receivables and net investments in operating leases in securitization transactions to fund operations and to maintain liquidity.  The majority of 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 and net investment in operating leases that have been included in securitization transactions are only available for payment of the debt and other obligations issued or arising in the securitization transactions.  Cash and cash equivalents and marketable securities balances relating to securitization transactions are used only to support the on-balance sheet securitization transactions.  We hold the right to the excess cash flows not needed to pay the debt and other obligations issued or arising in each of these securitization transactions.  The asset-backed debt has been issued either directly by us or by consolidated entities.

Most of these securitization transactions utilize VIEs.  Refer to Note 6 for more information concerning VIEs.  The following table shows the assets and the liabilities related to our securitization transactions that were included in our financial statements at September 30, 2010 and December 31, 2009 (in billions):

   
September 30, 2010
 
   
Cash and Cash
Equivalents and
Marketable
Securities (a)
   
Finance Receivables & Net Investment in Operating Leases (b)
   
Related Debt
 
   
Before Allowance
for Credit Losses
   
Allowance for
Credit Losses
   
After Allowance
for Credit Losses
 
VIE (c)
                             
Retail
  $ 3.1     $ 37.3     $ 0.5     $ 36.8     $ 30.0  
Wholesale
    0.4       16.0       0.0       16.0       9.5  
Finance receivables
    3.5       53.3       0.5       52.8       39.5  
Net investment in operating leases
    0.9       6.8       0.0       6.8       3.7  
Total
  $ 4.4     $ 60.1     $ 0.5     $ 59.6     $ 43.2  
                                         
Non-VIE
                                       
Retail
  $ 0.3     $ 2.0     $ 0.0     $ 2.0     $ 2.2  
Wholesale
    0.0       2.2       0.0       2.2       1.6  
Finance receivables
    0.3       4.2       0.0       4.2       3.8  
Net investment in operating leases
                             
Total (d)
  $ 0.3     $ 4.2     $ 0.0     $ 4.2     $ 3.8  
                                         
Total securitization transactions
                                       
Retail
  $ 3.4     $ 39.3     $ 0.5     $ 38.8     $ 32.2  
Wholesale
    0.4       18.2       0.0       18.2       11.1  
Finance receivables
    3.8       57.5       0.5       57.0       43.3  
Net investment in operating leases
    0.9       6.8       0.0       6.8       3.7  
Total
  $ 4.7     $ 64.3     $ 0.5     $ 63.8     $ 47.0  
 
(a)
Includes marketable securities totaling $116 million which are pledged as collateral in a funding arrangement with the European Central Bank (“ECB”).
(b) 
Unearned interest supplements are excluded from securitization transactions.
(c)
Includes assets to be used to settle the liabilities of the consolidated VIEs.
(d)
Certain debt issued by the VIEs to affiliated companies served as collateral for accessing the ECB open market operations program. This external funding of $427 million at September 30, 2010 was not reflected as debt of the VIEs and is reflected as non-VIE debt above. The finance receivables backing this external funding are reflected in VIE finance receivables.
 
 
10

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 5.  TRANSFERS OF RECEIVABLES (Continued)

   
December 31, 2009
 
         
Finance Receivables & Net Investment in Operating Leases (a)
       
   
Cash and Cash Equivalents
   
Before Allowance for Credit Losses
   
Allowance for Credit Losses
   
After Allowance for Credit Losses
   
Related Debt
 
VIE (b)
                             
Retail
  $ 3.1     $ 41.7     $ 0.8     $ 40.9     $ 31.2  
Wholesale
    0.5       16.5       0.0       16.5       8.4  
Finance receivables
    3.6       58.2       0.8       57.4       39.6  
Net investment in operating leases
    1.3       10.4       0.2       10.2       6.6  
Total
  $ 4.9     $ 68.6     $ 1.0     $ 67.6     $ 46.2  
                                         
Non-VIE
                                       
Retail
  $ 0.3     $ 3.2     $ 0.1     $ 3.1     $ 4.5  
Wholesale
    0.0       3.0       0.0       3.0       2.2  
Finance receivables
    0.3       6.2       0.1       6.1       6.7  
Net investment in operating leases
                             
Total (c)
  $ 0.3     $ 6.2     $ 0.1     $ 6.1     $ 6.7  
                                         
Total securitization transactions
                                       
Retail
  $ 3.4     $ 44.9     $ 0.9     $ 44.0     $ 35.7  
Wholesale
    0.5       19.5       0.0       19.5       10.6  
Finance receivables
    3.9       64.4       0.9       63.5       46.3  
Net investment in operating leases
    1.3       10.4       0.2       10.2       6.6  
Total
  $ 5.2     $ 74.8     $ 1.1     $ 73.7     $ 52.9  
 
(a) 
Unearned interest supplements are excluded from securitization transactions.
(b)
Includes assets to be used to settle the liabilities of the consolidated VIEs.
(c)
Certain debt issued by the VIEs to affiliated companies served as collateral for accessing the ECB open market operations program. This external funding of $1.8 billion at December 31, 2009 was not reflected as debt of the VIEs and is reflected as non-VIE debt above. The finance receivables backing this external funding are reflected in VIE finance receivables.
 
 
The financial performance related to our securitization transactions for the periods ended September 30 were as follows (in millions):

   
Third Quarter
 
   
2010
   
2009
 
   
Derivative
Expense
   
Interest
Expense
   
Total
   
Derivative
Expense/
(Income)
   
Interest
Expense
   
Total
 
VIE
  $ 90     $ 297     $ 387     $ 272     $ 408     $ 680  
Non-VIE
    5       49       54       (10 )     66       56  
Total
  $ 95     $ 346     $ 441     $ 262     $ 474     $ 736  


   
Nine Months
 
   
2010
   
2009
 
   
Derivative
Expense
   
Interest
Expense
   
Total
   
Derivative
Expense/
(Income)
   
Interest
Expense
   
Total
 
VIE
  $ 237     $ 971     $ 1,208     $ 281     $ 1,306     $ 1,587  
Non-VIE
    13       183       196        (8 )     243       235  
Total
  $ 250     $ 1,154     $ 1,404     $ 273     $ 1,549     $ 1,822  

 
11

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 5.  TRANSFERS OF RECEIVABLES (Continued)

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.  Refer to Note 10 regarding the fair value of derivatives.  In many instances, the counterparty enters into offsetting derivative transactions with us to mitigate their interest rate risk resulting from derivatives with our securitization entities.  Our exposures based on the fair value of derivative instruments related to securitization programs at September 30, 2010 and December 31, 2009 were as follows (in millions):

   
September 30, 2010
 
   
Derivative Asset
   
Derivative Liability
 
   
Securitization
Entities
   
Ford Credit
(Excluding Securitization
Entities)
   
Total
   
Securitization
Entities
   
Ford Credit
(Excluding Securitization
Entities)
   
Total
 
VIE
  $ 24     $     $ 24     $ 327     $     $ 327  
Non-VIE
    8       230       238       29       44       73  
Total
  $ 32     $ 230     $ 262     $ 356     $ 44     $ 400  
       
       
   
December 31, 2009
 
   
Derivative Asset
   
Derivative Liability
 
   
Securitization
Entities
   
Ford Credit
(Excluding Securitization
Entities)
   
Total
   
Securitization
Entities
   
Ford Credit
(Excluding Securitization
Entities)
   
Total
 
VIE
  $ 55     $     $ 55     $ 528     $     $ 528  
Non-VIE
    14       383       397       51       27       78  
Total
  $ 69     $ 383     $ 452     $ 579     $ 27     $ 606  

Off-Balance Sheet Securitization Transactions

We recognized a loss of $49 million in the third quarter of 2009, and income of $1 million and a loss of $30 million in the first nine months of 2010 and 2009, respectively, of investment and other income related to the sales of receivables.  Third quarter of 2009 includes a $52 million valuation allowance for Australian finance receivables classified as held-for-sale at September 30, 2009.  These amounts are included in Other income, net.  Also, we received cash flows of $26 million and $60 million in the first nine months of 2010 and 2009, respectively, related to the net change in retained interests in securitized assets.  These amounts are included in All other investing activities in our consolidated statement of cash flows.

 
12

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 6.  VARIABLE INTEREST ENTITIES

We adopted the FASB’s new accounting standard on VIEs on January 1, 2010.  The standard requires ongoing assessments of whether an entity is the primary beneficiary of a VIE and enhancements to the disclosures about an entity’s involvement with a VIE.  This standard requires the consolidation of a VIE if an entity has both (i) the power to direct the activities of the VIE, and (ii) the obligation to absorb losses or the right to receive residual returns that could potentially be significant to the VIE.  Conversely, the standard does not permit consolidation if these two tests are not met.  This new standard did not result in any deconsolidation of entities or additional consolidation of 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 on-balance sheet securitizations.

If we determine that we have operating power and the obligation to absorb losses or receive benefits, we consolidate the VIE as the primary beneficiary and, if not, we do not consolidate.  We have operating power 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 secured 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 transactions, including senior and subordinated securities issued by the VIEs, rights to cash held for the benefit of the securitization investors, such as cash reserves, and residual interests.

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 our transactions based on the risk profile of the product and the type of funding structure, including:

 
Retail transactions consumer credit risk and pre-payment risk, which are driven by the ability of the customer to pay, as well as the timing of the customer payments;
 
Wholesale transactions 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; and
 
Net investment in operating lease transactions vehicle residual value risk, consumer credit risk and pre-payment risk.

 
13

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 6.  VARIABLE INTEREST ENTITIES (Continued)

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 is generally represented by and limited to the amount of overcollateralization of our assets securing the debt and any cash reserves.

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

Although not contractually required, we regularly support our wholesale securitization programs by repurchasing receivables of a dealer from the VIEs when the dealer’s performance is at risk, which transfers the corresponding risk of loss from the VIE to us.  In order to continue to fund the wholesale receivables, we also may contribute additional cash or wholesale receivables if the collateral falls below the required levels.  The balances of cash related to these contributions were zero at September 30, 2010 and December 31, 2009, and ranged from zero to $1,361 million during the first nine months of 2010.  In addition, while not contractually required, we may purchase the commercial paper issued by our FCAR asset-backed commercial paper program.

VIEs that are exposed to interest rate or currency risk have reduced their risks by entering into derivatives.  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 their derivative transactions with the VIEs.  See Note 11 for additional information regarding our derivatives.

Refer to Note 5 for 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 consumer and dealer financing in its local markets and is financed by external debt and additional subordinated interest provided by our joint venture partner.  The operating agreement indicates that the power to direct economically significant activities is shared with our joint venture partner, and the obligation to absorb losses or right to receive benefits resides primarily with our 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 $73 million and $67 million at September 30, 2010 and December 31, 2009, respectively.

 
14

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 7.  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.  This footnote provides more information contained within the combined items.

Other assets at September 30, 2010 and December 31, 2009 were as follows (in millions):

   
September 30,
2010
   
December 31,
2009
 
Accrued interest, rents and other non-finance receivables
  $ 920     $ 1,070  
Collateral held for resale, at net realizable value
    462       624  
Deferred charges
    336       665  
Restricted cash (a)
    304       308  
Investment in used vehicles held for resale at net realizable value
    240       458  
Prepaid reinsurance premiums and other reinsurance receivables
    235       275  
Property and equipment, net of accumulated depreciation of $365 and $348 at
               
September 30, 2010 and December 31, 2009, respectively      150       177  
Investment in non-consolidated affiliates
    129       123  
Other
    320       400  
Total other assets
  $ 3,096     $ 4,100  
 
(a)
Includes cash collateral required to be held against loans with the European Investment Bank as well as cash held to meet certain local governmental and regulatory reserve requirements.
 
Other liabilities and deferred income at September 30, 2010 and December 31, 2009 were as follows (in millions):

   
September 30,
2010
   
December 31,
2009
 
Interest payable
  $ 1,006     $ 1,007  
Deferred interest supplements and residual support payments on net investment in operating leases
    878       1,074  
Income taxes payable to Ford and affiliated companies (a)(b)
    791       1,352  
Unrecognized tax benefits
    745       596  
Unearned insurance premiums
    261       315  
Other
    366       465  
Total other liabilities and deferred income
  $ 4,047     $ 4,809  
 
(a)
During the second quarter of 2010, we purchased $1.3 billion principal amount of Ford’s Amortizing Guaranteed Secured Notes (“VEBA Note A”) issued to the UAW Retiree Medical Benefits Trust for $1.3 billion and immediately transferred the note to Ford in satisfaction of $1.3 billion of our tax liabilities to Ford.
(b)
In accordance with our intercompany tax sharing agreement with Ford.
 
 
15

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 8.  DEBT

We have an asset-backed commercial paper program in the United States 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 asset-backed securitization programs that issue short-term debt securities that are sold to institutional investors.  Bank borrowings by several of our international affiliates in the ordinary course of business are an additional source of short-term funding.

We obtain long-term debt funding through the issuance of a variety of unsecured and asset-backed debt securities in the United States and international capital markets.  We also sponsor a number of asset-backed securitization programs that issue long-term debt securities that are sold to institutional investors in the United States and international capital markets.

Debt

At September 30, 2010 and December 31, 2009, debt was as follows (in millions):

   
Interest Rates
             
   
Average Contractual (a)
   
Weighted-Average (b)
   
September 30,
   
December 31,
 
   
2010
   
2009
   
2010
   
2009
   
2010
   
2009
 
Short-term debt
                                   
Asset-backed commercial paper (c)
    0.5%       0.9%                 $ 6,689     $ 6,369  
Ford Interest Advantage (d)
    1.9%       2.7%                   4,551       3,680  
Other asset-backed short-term debt (c)
    2.4%       2.6%                   2,402       4,482  
Other short-term debt (e)
    5.1%       4.2%                   874       891  
Total short-term debt
    1.6%       2.0%       2.0%       3.0%       14,516       15,422  
Long-term debt
                                               
Senior indebtedness
                                               
Notes payable within one year (e)
                                    6,323       7,053  
Notes payable after one year (e)
                                    29,722       32,124  
Asset-backed debt (c)
                                               
Notes payable within one year
                                    18,461       18,952  
Notes payable after one year
                                    19,465       23,076  
Unamortized discount
                                    (435 )     (525 )
Fair value adjustments (f)
                                    421       231  
Total long-term debt (g)
    5.4%       5.4%       5.0%       5.1%       73,957       80,911  
Total debt
    4.7%       4.8%       4.5%       4.8%     $ 88,473     $ 96,333  
                                                 
Fair value of debt (h)
                                  $ 92,335     $ 97,962  
 
(a)
Third quarter of 2010 and fourth quarter of 2009 average contractual rates exclude the effects of derivatives and facility fees.
(b)
Third quarter of 2010 and fourth quarter of 2009 weighted-average rates include the effects of derivatives and facility fees.
(c)
Obligations issued in securitizations that are payable only out of collections on the underlying securitized assets and related enhancements. Refer to Note 5 for information regarding on-balance sheet securitization transactions.
(d)
The Ford Interest Advantage program consists of our floating rate demand notes.
(e)
Includes debt with affiliated companies as indicated in the table below.
(f)
Adjustments related to designated fair value hedges of unsecured debt.
(g)
Average contractual and weighted-average interest rates for total long-term debt reflect the rates for both notes payable within one year and notes payable after one year.
(h)
Fair value of debt reflects interest accrued but not yet paid of about $1 billion and $1.1 billion at September 30, 2010 and December 31, 2009, respectively. Interest accrued is reported in Other liabilities and deferred income and Accounts payable – Affiliated companies. See Note 10 for fair value methodology.
 
   
September 30,
   
December 31,
 
      2010       2009  
Debt with affiliated companies
               
Other short-term debt
  $ 395     $ 403  
Notes payable within one year
    163       40  
Notes payable after one year
    115       121  
Total debt with affiliated companies
  $ 673     $ 564  

 
16

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 8.  DEBT (Continued)

Debt Repurchases.  From time to time and based on market conditions, we may repurchase some of our outstanding debt.  If we have excess liquidity and it is an economically favorable use of our available cash, we may repurchase debt at a price lower or higher than its carrying value, resulting in a gain or loss on extinguishment.

Through private market transactions, we repurchased unsecured debt and asset-backed notes for an aggregate principal amount of about $1 billion and about $3 billion in the third quarter of 2010 and the first nine months of 2010, respectively.  As a result, we recorded pre-tax losses of $26 million and $86 million, net of unamortized premiums and discounts, in Other income, net in the third quarter of 2010 and the first nine months of 2010, respectively.

We repurchased unsecured debt for an aggregate principal amount of $1.5 billion and $2.5 billion in the third quarter of 2009 and the first nine months of 2009, respectively.  As a result, we recorded a pre-tax loss of $4 million and a pre-tax gain of $18 million, net of unamortized premiums and discounts, in Other income, net in the third quarter of 2009 and the first nine months of 2009, respectively.

Debt Maturities.  Short-term and long-term debt matures at various dates through 2048.  Maturities are as follows (in millions):

   
2010 (a)
   
2011 (b)
   
2012
   
2013
   
2014
   
Thereafter (c)
   
Total
 
Unsecured debt maturities
  $ 5,454     $ 9,889     $ 7,081     $ 5,371     $ 3,653     $ 10,022     $ 41,470  
Asset-backed debt maturities
    11,565       18,415       11,018       3,604       914       1,501       47,017  
Unamortized discount (d)
    1             (141 )     (58 )     (168 )     (69 )     (435 )
Fair value adjustments (d)
          50       106       103       57       105       421  
Total debt maturities
  $ 17,020     $ 28,354     $ 18,064     $ 9,020     $ 4,456     $ 11,559     $ 88,473  
 
(a)
Includes about $11 billion for short-term and about $6 billion for long-term debt.
(b)
Includes $3.5 billion for short-term and $24.9 billion for long-term debt.
(c)
Approximately $8.7 billion of unsecured debt matures between 2015 and 2020 with the remaining balance maturing after 2030.
(d)
Unamortized discount and fair value adjustments are presented based on maturity date of related debt.
 
NOTE 9.  RETAINED EARNINGS

The following table summarizes earnings retained for use in the business for the periods ended September 30 (in millions):
 
   
Third Quarter
   
Nine Months
 
   
2010
   
2009
   
2010
   
2009
 
Retained earnings, beginning balance
  $ 5,363     $ 4,331     $ 4,779     $ 4,985  
Net income
    497       427       1,581       827  
Distributions
    (1,000 )     (431 )     (1,500 )     (1,485 )
Retained earnings, ending balance
  $ 4,860     $ 4,327     $ 4,860     $ 4,327  

In the third quarter of 2009, we made a cash distribution of $400 million and a non-cash distribution of $31 million for our ownership interest in AB Volvofinans to our parent, Ford Holdings LLC.

In the first quarter of 2009, a plan was announced to restructure Ford’s debt through a combination of a conversion offer by Ford and tender offers by us.  As part of this debt restructuring, we commenced a cash tender offer for Ford’s secured term loan under Ford’s secured credit agreement, pursuant to which we purchased from lenders $2.2 billion principal amount of term loan for an aggregate cost of about $1.1 billion (including transaction costs).  This transaction settled on March 27, 2009, following which we distributed the term loan to our parent, Ford Holdings LLC, whereupon it was forgiven.  The transaction is reflected in the table above as a $1,054 million distribution in the first nine months of 2009, which consists of the fair value of the term loan purchased plus transaction expenses.
 
 
17

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 10.  FAIR VALUE MEASUREMENTS

Certain assets and liabilities are presented on our financial statements at fair value.  Assets and liabilities measured at fair value on a recurring basis on our balance sheet include cash equivalents, marketable securities, derivative financial instruments and retained interests in securitized assets.  Assets and liabilities measured at fair value on a recurring basis for disclosure purposes only include finance receivables and debt.  The fair value of these items are presented together with the related carrying value in Notes 2 and 8, respectively.  Assets and liabilities measured at fair value on a nonrecurring basis vary based on specific circumstances such as impairments.

We adopted the FASB’s new accounting standard on fair value measurements on January 1, 2010.  The standard requires both new disclosures and clarifies existing disclosures.  The standard also requires a greater level of disaggregated information in the fair value hierarchy as well as expands disclosures about valuation techniques and inputs to measure fair value, as defined below.

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value should be based on assumptions that market participants would use, including a consideration of non-performance risk.  In determining fair value, we use various valuation methodologies and prioritize the use of observable inputs.  We assess the inputs used to measure fair value using a three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market:

 
Level 1 inputs include quoted prices for identical instruments and are the most observable.
 
Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves.
 
Level 3 inputs include data not observable in the market and reflect management’s judgments about the assumptions market participants would use in pricing the asset or liability.

The use of observable and unobservable inputs and their significance in measuring fair value are reflected in our hierarchy assessment.

Valuation Methodologies

 Cash, Cash Equivalents and Marketable Securities.  Cash and all highly liquid investments with a maturity of 90 days or less at the date of purchase are classified as Cash and cash equivalents.  Investments in securities with a maturity date greater than 90 days at the date of purchase are classified as Marketable securities.  Cash on hand, time deposits, certificates of deposit, and money market accounts are reported at par value, which approximates fair value.  For other investment securities, we generally measure fair value based on a market approach using prices obtained from pricing services.  We review all pricing data for reasonability and observability of inputs.  Pricing methodologies and inputs to valuation models used by the pricing services depend on the security type (i.e., asset class).  Where possible, fair values are generated using market inputs including quoted prices (the closing price in an exchange market), bid prices (the price at which a dealer stands ready to purchase) and other market information.  For securities that are not actively traded, the pricing services obtain quotes for similar fixed-income securities or utilize matrix pricing, benchmark curves or other factors to determine fair value.  In certain cases, when observable pricing data is not available, we estimate the fair value of investment securities based on an income approach using industry standard valuation models and estimates regarding non-performance risk.

 
18

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 10.  FAIR VALUE MEASUREMENTS (Continued)

Derivative Financial Instruments.  Our derivatives are over-the-counter customized derivative transactions and are not exchange traded.  We estimate the fair value of these instruments based on an income approach using industry standard valuation models.  These models project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates, foreign exchange rates and the contractual terms of the derivative instruments.  The discount rate used is the relevant interbank deposit rate (e.g., LIBOR) plus an adjustment for non-performance risk.  The adjustment reflects the full credit default swap (“CDS”) spread applied to a net exposure, by counterparty.  We use our counterparty’s CDS spread when we are in a net asset position and our own CDS spread when we are in a net liability position.

In certain cases, market data is not available and we use management judgment to develop assumptions which are used to determine fair value.  This includes situations for longer-dated instruments where market data is less observable.  Also, for interest rate swaps and cross-currency interest rate swaps used in securitization transactions, the notional amount of the swap is adjusted for actual payments on the securitized contracts.  We use management judgment to estimate the timing and amount of the remaining swap cash flows based on historical pre-payment speeds.

Retained Interests in Securitized Assets.  We estimate the fair value of retained interests based on an income approach using internal valuation models.  These models project future cash flows of the monthly collections on the sold finance receivables in excess of amounts needed for payment of the debt and other obligations issued or arising in the securitization transactions.  The projected cash flows are discounted to a present value based on market inputs and our own assumptions regarding credit losses, pre-payment speed and the discount rate.

Finance Receivables.  We generally estimate the fair value of finance receivables based on an income approach using internal valuation models.  These models project future cash flows of financing contracts based on scheduled contract payments (including principal and interest).  The projected cash flows are discounted to a present value based on market inputs and our own assumptions regarding credit losses, pre-payment speed and the discount rate.  Our assumptions regarding pre-payment speed and credit losses are based on historical performance.

Debt.  We estimate the fair value of debt based on a market approach using quoted market prices or current market rates for similar debt with approximately the same remaining maturities, where possible.  Where market prices are not available, we estimate fair value based on an income approach using discounted cash flow models.  These models project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates, our own credit risk and the contractual terms of the debt instruments.  For asset-backed debt issued in securitization transactions, the actual principal payments are based on the receipts from the securitized contracts.  We use management judgment to estimate the timing and amount of the remaining cash flows based on historical pre-payment speeds.

 
19

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 10.  FAIR VALUE MEASUREMENTS (Continued)

Input Hierarchy

The following tables summarize the fair values by input hierarchy for financial instruments measured at fair value on a recurring basis at September 30, 2010 and December 31, 2009 (in millions):

   
September 30, 2010
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                       
Cash equivalents financial instruments
                       
U.S. government
  $ 125     $     $     $ 125  
Government-sponsored enterprises
                       
Corporate debt
          400             400  
Government non U.S.
          241             241  
Total cash equivalents financial instruments (a)
    125       641             766  
Marketable securities
                               
U.S. government
    3,761                   3,761  
Government-sponsored enterprises
          5,114             5,114  
Corporate debt (b)
          1,695       7       1,702  
Mortgage-backed
          232             232  
Government non U.S.
          589             589  
Other liquid investments (c)
          139             139  
Total marketable securities
    3,761       7,769       7       11,537  
Derivative financial instruments
                               
Interest rate contracts
          1,302       241       1,543  
Foreign exchange forward contracts
          83             83  
Cross currency interest rate swap contracts
          57             57  
Total derivative financial instruments
          1,442       241       1,683  
Retained interests in securitized assets (d)
                       
Total assets at fair value
  $ 3,886     $ 9,852     $ 248     $ 13,986  
                                 
Liabilities
                               
Derivative financial instruments
                               
Interest rate contracts
  $     $ 147     $ 300     $ 447  
Foreign exchange forward contracts
          17             17  
Cross currency interest rate swap contracts
          122       76       198  
Total derivative financial instruments
          286       376       662  
Total liabilities at fair value
  $     $ 286     $ 376     $ 662  
 
(a)
Excludes $5.8 billion of time deposits, certificates of deposit, money market accounts, and other cash equivalents reported at par value, which approximates fair value.  In addition to these cash equivalents, we also had cash on hand totaling $2.2 billion.
(b)
Includes notes issued by supranational institutions.
(c)
Includes certificates of deposits and time deposits with maturities greater than 90 days at the date of purchase.
(d)
Retained interests in securitized assets are reported in Other assets.
 
 
20

 
Item 1.  Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 10.  FAIR VALUE MEASUREMENTS (Continued)

   
December 31, 2009
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                       
Cash equivalents financial instruments
                       
U.S. government
  $ 75     $     $     $ 75  
Government-sponsored enterprises
          400             400  
Corporate debt
          75             75  
Government non U.S.
          29             29  
Total cash equivalents financial instruments (a)
    75       504             579  
Marketable securities
                               
U.S. government
    5,256                   5,256  
Government-sponsored enterprises
          1,098             1,098  
Corporate debt
          159       4       163  
Mortgage-backed
          237             237  
Government non U.S.
          65             65  
Other liquid investments (b)
          45             45  
Total marketable securities
    5,256       1,604       4       6,864  
Derivative financial instruments
                               
Interest rate contracts
          1,230       407       1,637  
Foreign exchange forward contracts
          22             22  
Cross currency interest rate swap contracts
          203             203  
Total derivative financial instruments
          1,455       407       1,862  
Retained interests in securitized assets (c)
                26       26  
Total assets at fair value
  $ 5,331     $ 3,563     $ 437     $ 9,331  
                                 
Liabilities
                               
Derivative financial instruments