Results of Operations
On a pre-tax basis we earned $438 million in the second quarter of 2012,
compared with $604 million a year ago. The following chart shows the decrease in
pre-tax operating profit by causal factor:
(a) Total receivables reflect net finance receivables and net investment in
operating leases reported on Ford Credit's balance sheet. Managed
receivables equal total receivables, excluding unearned interest
supplements of $(2) billion at June 30, 2012 and June 30, 2011.
The decline in pre-tax profits is more than explained by fewer lease
terminations, which resulted in fewer vehicles sold at a gain, and lower
financing margin; the decline in financing margin is explained primarily by the
run-off of higher yielding assets originated in prior years.
Results of our operations by business segment and unallocated risk management
for the periods ending June 30 are shown below (in millions). For additional
information, see Note 13 of our Notes to the Financial Statements.
Second Quarter First Half
2012 2011 2011 2012 2011 2011
Segment $ 435 $ 607 $ (172 ) $ 839 $ 1,258 $ (419 )
Segment 48 45 3 139 167 (28 )
management (45 ) (48 ) 3 (88 ) (108 ) 20
taxes $ 438 $ 604 $ (166 ) $ 890 $ 1,317 $ (427 )
The decreases in North America Segment pre-tax profits are more than explained
by fewer lease terminations, which resulted in fewer vehicles sold at a gain,
and lower financing margin.
International Segment pre-tax profits for the second quarter of 2012 were about
equal to the same period a year ago. The first half decrease in International
Segment pre-tax profits is more than explained by unfavorable lease residual
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Contract Placement Volume and Financing Share
Total worldwide consumer financing contract placement volumes for new and used
vehicles for the periods ending June 30 were as follows (in thousands):
Second Quarter First Half
2012 2011 2012 2011
North America Segment
United States 245 219 481 418
Canada 34 29 57 55
Total North America
Segment 279 248 538 473
Europe 104 95 201 199
International 12 15 25 25
Segment 116 110 226 224
Total contract placement volume 395 358 764 697
Shown below are our financing shares of new vehicles sold by dealers in the
United States and new vehicles sold by dealers in Europe for the periods ending
June 30. Also shown below are our wholesale financing shares of new vehicles
acquired by dealers in the United States, excluding fleet, and of new vehicles
acquired by dealers in Europe for the periods ending June 30:
Second Quarter First Half
2012 2011 2012 2011
Financing share - Ford and Lincoln
Retail installment and
lease 36 % 34 % 37 % 35 %
Wholesale 78 81 78 81
Financing share - Ford
Retail installment and
lease 32 % 28 % 30 % 27 %
Wholesale 98 98 98 99
North America Segment
The increases in total contract placement volumes primarily reflected higher
financing share and higher sales of new vehicles. Higher financing share was
primarily explained by changes in Ford's marketing programs that favored us.
In the second quarter of 2012, our total contract placement volumes were up from
a year ago, primarily reflecting higher European financing share, offset
partially by lower industry volume in Europe and lower contract volume in China,
primarily due to lower Ford sales and lower financing share. Contract volumes
for the first half were about equal to the same period a year ago. The first
half increase in financing share was primarily explained by changes in Ford's
marketing programs that favored us.
Finance Receivables and Operating Leases
Our receivables, including finance receivables and operating leases, at June 30,
2012 and December 31, 2011 were as follows (in billions):
June 30, December 31,
Finance receivables - North America Segment
Retail installment and direct financing leases $ 38.4 $ 38.4
Wholesale 15.5 15.5
Dealer loan and other 2.3 2.1
Total North America Segment - finance receivables (a) 56.2
Finance receivables - International Segment
Retail installment and direct financing leases 8.8 9.1
Wholesale 7.5 8.5
Dealer loan and other 0.5 0.4
Total International Segment - finance receivables (a) 16.8
Unearned interest supplements (1.6 ) (1.6 )
Allowance for credit losses (0.4 ) (0.5 )
Finance receivables, net 71.0
Net investment in operating leases (a) 12.9 11.1
Total receivables (b) $ 83.9 $ 83.0
Total managed receivables (c) $ 85.5 $ 84.6
(a) At June 30, 2012 and December 31, 2011, includes consumer receivables before
allowance for credit losses of $31.0 billion and $36.0 billion, respectively,
and non-consumer receivables before allowance for credit losses of $19.5
billion and $19.8 billion, respectively, that have been sold for legal
purposes in securitization transactions but continue to be reported in our
consolidated financial statements. In addition, at June 30, 2012 and
December 31, 2011, includes net investment in operating leases before
allowance for credit losses of $4.2 billion and $6.4 billion, respectively,
that have been included in securitization transactions but continue to be
reported in our financial statements. 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
receive the excess cash flows not needed to pay the debt and other
obligations issued or arising in each of these securitization transactions.
For additional information on our securitization transactions, refer to the
"Securitization Transactions" and "On-Balance Sheet Arrangements" sections of
Item 7 of Part II of our 10-K Report and Note 6 of our Notes to the Financial
Statements for the period ended December 31, 2011.
(b) Includes allowance for credit losses of $406 million and $534 million at
June 30, 2012 and December 31, 2011, respectively.
(c) Excludes unearned interest supplements related to finance receivables.
Receivables at June 30, 2012, increased from year end 2011, primarily due to
higher leasing in North America.
Credit risk is the possibility of loss from a customer's or dealer's failure to
make payments according to contract terms. Credit risk has a significant impact
on our business. We actively manage the credit risk of our consumer (retail
installment and lease) and non-consumer (wholesale and dealer loan) segments to
balance our level of risk and return. The allowance for credit losses (also
referred to as the credit loss reserves) is our estimate of the probable credit
losses inherent in receivables and leases at the date of our balance sheet. 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. 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. A description of our allowance setting process is
provided in the "Critical Accounting Estimates - Allowance for Credit Losses"
section of Item 7 of Part II of our 2011 10-K Report.
Most of our charge-offs are related to retail installment sale and lease
contracts. Charge-offs result from the number of vehicle repossessions, the
unpaid balance outstanding at the time of repossession, the auction price of
repossessed vehicles, and other charge-offs. We also incur credit losses on our
wholesale loans, but default rates for these receivables historically have been
substantially lower than those for retail installment sale and lease contracts.
For additional information on severity, refer to the "Critical Accounting
Estimates - Allowance for Credit Losses" section of Item 7 of Part II of our
2011 10-K Report.
In purchasing retail finance and lease contracts, we use a proprietary scoring
system that classifies contracts using several factors, such as credit bureau
information, credit bureau scores (e.g., FICO score), customer characteristics,
and contract characteristics. In addition to our proprietary scoring system, we
consider other factors, such as employment history, financial stability, and
capacity to pay. At June 30, 2012 and December 31, 2011, between 5% - 6% of the
outstanding U.S. retail finance and lease contracts in our portfolio were
classified by us as high risk at contract inception. For additional information
on the quality of our receivables, see Note 2 of our Notes to the Financial
Credit Loss Metrics
The following charts show quarterly trends of charge-offs (credit losses, net of
recoveries), loss-to-receivables ratios (charge-offs on an annualized basis
divided by the average amount of receivables outstanding for the period,
excluding the reserves and unearned interest supplements related to finance
receivables), credit loss reserves, and our credit loss reserves as a percentage
of end-of-period ("EOP") receivables:
Our second quarter credit losses continued to be at historically low levels and
have improved in all geographic segments from the same period a year ago.
Charge-offs in the second quarter were $17 million, down $32 million from the
same period a year ago, reflecting lower repossessions in the United States.
Charge-offs were down $18 million from the first quarter of 2012, reflecting the
same factor just mentioned.
The credit loss reserves were $406 million, down $267 million from a year ago
and down $73 million from the first quarter of 2012, reflecting the decrease in
U.S. Ford and Lincoln Brand Retail Installment and Operating Lease
The following charts show the credit loss metrics for our U.S. Ford and Lincoln
brand retail installment sale and operating lease portfolio, which comprised
approximately 70% of our worldwide consumer portfolio at June 30, 2012:
(a) Reflects a change to include certain repossession expenses in charge-offs.
Over-60-day delinquencies were 0.13% in the second quarter, equal to the same
period a year ago.
Repossessions in the second quarter were 7,000 units or 1.19% of average
accounts outstanding, down 52 basis points from the same period a year ago.
Severity of $6,700 in the second quarter was $200 higher than the same period a
year ago, and equal to the first quarter.
As discussed previously, charge-offs and LTRs have declined on a year-over-year
and quarter-over-quarter basis due to lower repossessions.
We are exposed to residual risk on operating leases and similar balloon payment
products where the customer may return the financed vehicle to us. Residual risk
is the possibility that the amount we obtain from returned vehicles will be less
than our estimate of the expected residual value for the vehicle. We estimate
the expected residual value by evaluating recent auction values, return volumes
for our leased vehicles, industry-wide used vehicle prices, marketing incentive
plans, and vehicle quality data.
For additional information on our residual risk on operating leases, refer to
the "Critical Accounting Estimates - Accumulated Depreciation on Vehicles
Subject to Operating Leases" section of Item 7 of Part II of our 2011 10-K
U.S. Ford and Lincoln Brand Operating Lease Experience
The following charts show return volumes and auction values at constant second
quarter 2012 vehicle mix for vehicles returned in the respective periods. Our
U.S. Ford and Lincoln operating lease portfolio accounted for about 85% of our
total investment in operating leases at June 30, 2012.
Lease return volumes in the second quarter were 40% lower than the same period
last year, primarily reflecting the lower lease placements in 2009. The second
quarter lease return rate was 59%, up four percentage points compared with the
same period last year, reflecting a higher mix of 24-month contracts, which
typically have higher return rates than longer term contracts.
In the second quarter, our auction values for 36-month vehicles declined by $325
per unit from the same period last year. Compared with the first quarter, our
24-month and 36-month auction value performance was mixed.
Our worldwide net investment in operating leases was $12.9 billion at the end of
the second quarter of 2012, up from $11.1 billion at year end 2011.
Our short-term and long-term debt is rated by four credit rating agencies
designated as nationally recognized statistical rating organizations ("NRSROs")
by the SEC:
• DBRS Limited ("DBRS");
• Fitch, Inc. ("Fitch");
• Moody's Investors Service, Inc. ("Moody's"); and
• Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("S&P").
The following chart summarizes changes in long-term senior unsecured credit
ratings, short-term credit ratings, and the outlook assigned to us since
January 2011 by these four NRSROs:
DBRS Fitch Moody's S&P
Long- Short- Long- Short- Long- Short- Long- Short-
Date Term Term Trend Term Term Outlook Term Term Outlook Term Term Outlook
Jan. 2011 BB R-4 Stable BB- B Positive Ba2 NP Positive B+ NR Positive
Feb. 2011 BB R-4 Stable BB- B Positive Ba2 NP Positive BB- NR Positive
Sep. 2011 BB (high) R-4 Stable BB- B Positive Ba2 NP Positive BB- NR Positive
Oct. 2011 BB (high) R-4 Stable BB+ B Positive Ba1 NP Positive BB+ NR Stable
Apr. 2012 BB (high) R-4 Stable BBB- F3 Stable Ba1 NP Positive BB+ NR Stable
May 2012 BB (high) R-4 Positive (b) BBB- F3 Stable Baa3 P-3 Stable BB+ (a) NR Stable
(a) S&P assigns FCE Bank plc ("FCE") a long-term senior unsecured credit rating
of BBB-, maintaining a one notch differential versus Ford Credit.
(b) DBRS placed Ford Credit under review with positive implications on May 4,
Our funding strategy remains focused on diversification and we plan to continue
accessing a variety of markets, channels and investors. Our liquidity remains
strong, and we will maintain cash balances and committed capacity that meet our
business and funding requirements in all global market conditions.
Ford Credit is on track to achieve our 2012 funding plan. Through August 2,
2012, we completed $15 billion of funding in the public markets, including about
$6 billion of unsecured issuance, of which about $350 million was issued under
the Ford Credit U.S. Retail Notes program.
We ended the quarter with about $22 billion of liquidity and about $33 billion
of committed capacity, compared with about $17 billion of liquidity and $33
billion of committed capacity at December 31, 2011. Ford Credit renewed about
$10 billion of committed capacity in the second quarter. For additional
information on our committed capacity programs, refer to the "Liquidity"
The following chart shows the trends in funding for our managed receivables:
(a) The Ford Interest Advantage program consists of our floating rate
(b) Obligations issued in securitization transactions that are payable only
out of collections on the underlying securitized assets and related
(c) Includes about $0.5 billion of unsecured commercial paper in the United
States in second quarter 2012.
(d) Excludes marketable securities related to insurance activities.
At the end of the second quarter of 2012, managed receivables were $86 billion.
We ended the quarter with $11 billion in cash, and securitized funding was 48%
of managed receivables, compared with 55% at year end 2011. This reflects the
mandatory exchange of $2.5 billion of asset-backed Ford Upgrade Exchange Linked
("FUEL") notes for unsecured notes of Ford Credit, which was triggered by the
upgrade to investment grade of Ford Credit's long-term, unsecured debt by two
credit rating agencies during the second quarter of 2012.
We are now projecting 2012 year-end managed receivables in the range of $85
billion to $90 billion and securitized funding is expected to represent about
49% of total managed receivables. We have reduced the upper end of the range to
reflect uncertainty in Europe. It is our expectation that securitized funding as
a percent of managed receivables will decline going forward.
Public Term Funding Plan
The following table shows our planned issuances for full-year 2012, and our
public term funding issuances through August 2, 2012, and full-years 2011 and
2010 (in billions):
Term Funding Plan
Forecast Through August 2, Full-Year 2011 Full-Year 2010
Unsecured $ 8-10 $ 6 $ 8 $ 6
Securitizations (a) 12-14 9 11 11
Total $ 20-24 $ 15 $ 19 $ 17
(a) Includes Rule 144A offerings such as FUEL notes issuance in 2011.
Through August 2, 2012, we completed $15 billion of public term funding in the
United States, Canada and Europe, including about $6 billion of unsecured debt.
This reflects over half of our public term funding needs for the year.
For 2012, we project full-year public term funding in the range of $20 billion
to $24 billion, consisting of $8 billion to $10 billion of unsecured debt and
$12 billion to $14 billion of public securitizations. The public securitization
range is up about $2 billion from the first quarter, reflecting a shift from
private securitizations to public securitizations as a result of the success we
have had in the public markets.
We define gross liquidity as cash, cash equivalents, and marketable securities
(excluding marketable securities related to insurance activities) and capacity
(which includes our credit facilities, FCAR Owner Trust retail securitization
program ("FCAR"), and asset-backed funding facilities), less utilization of
liquidity. Utilization of liquidity is the amount funded under our liquidity
sources, and also includes the cash and cash equivalents required to support
securitization transactions. Securitization cash is cash held for the benefit of
the securitization investors (for example, a reserve fund). Liquidity available
for use is defined as gross liquidity less asset-backed capacity in excess of
The following table illustrates our liquidity programs and utilization (in
June 30, December 31,
Liquidity Sources (a)
Cash (b) $ 11.1 $ 12.1
Unsecured credit facilities 0.7 0.7
FCAR bank lines 6.6 7.9
Conduit / Bank Asset-Backed Securitizations ("ABS") 25.6 24.0
Total liquidity sources $ 44.0 $ 44.7
Utilization of Liquidity
Securitization cash (c) $ (3.4 ) $ (3.7 )
Unsecured credit facilities - (0.2 )
FCAR bank lines (5.6 ) (6.8 )
Conduit / Bank ABS (9.4 ) (14.5 )
Total utilization of liquidity (18.4 ) (25.2 )
Gross liquidity 25.6
Capacity in excess of eligible receivables (4.0 ) (2.4 )
Liquidity available for use $ 21.6 $ 17.1
(a) FCAR and conduits subject to availability of sufficient assets and ability to
obtain derivatives to manage interest rate risk; FCAR commercial paper must
be supported by bank lines equal to at least 100% of the principal amount;
conduits include committed securitization programs.
(b) Cash, cash equivalents, and marketable securities (excludes marketable
securities related to insurance activities).
(c) Securitization cash is to be used only to support on-balance sheet
At June 30, 2012, we had $44.0 billion of committed capacity and cash
diversified across a variety of markets and platforms. The utilization of our
liquidity totaled $18.4 billion at quarter-end, compared to $25.2 billion at
year end. The reduction of $6.8 billion from year end, primarily reflects lower
usage of our private conduits.
We ended the quarter with gross liquidity of $25.6 billion, which includes about
$4.0 billion in capacity in excess of eligible receivables, providing a funding
source for future originations and flexibility to transfer capacity among
markets and asset classes where most needed. Liquidity available for use
remained strong at $21.6 billion at the end of the quarter, compared with $17.1
billion at year end 2011. The increase of $4.5 billion from year end primarily
reflects lower conduit utilization and the FUEL notes exchange. We expect
liquidity to reduce by year end, closer to the first quarter level of $18.1
Cash, Cash Equivalents, and Marketable Securities. At June 30, 2012, our cash,
cash equivalents, and marketable securities (excluding marketable securities
related to insurance activities) totaled $11.1 billion, compared with $12.1
billion at year end 2011. In the normal course of our funding activities, we
may generate more proceeds than are required for our immediate funding needs.
These excess amounts are maintained primarily as highly liquid investments,
which provide liquidity for our short-term funding needs and give us flexibility
in the use of our other funding programs. Our cash, cash equivalents, and
marketable securities are held primarily in highly liquid investments, which
provide for anticipated and unanticipated cash needs. Our cash, cash
equivalents, and marketable securities (excluding marketable securities related
to insurance activities) primarily include U.S. Department of Treasury
obligations, federal agency securities, bank time deposits with investment-grade
institutions and non-U.S. central banks, corporate investment-grade securities,
commercial paper rated A-1/P-1 or higher, debt obligations of a select group of
non-U.S. governments, non-U.S. government agencies, supranational institutions
and money market funds that carry the highest possible ratings. We
currently do not hold cash, cash equivalents, or marketable securities
consisting of investments in government obligations of Greece, Ireland, Italy,
Portugal, or Spain, nor did we hold any at June 30, 2012.
The average maturity of these investments ranges from 90 days to up to one year
and is adjusted based on market conditions and liquidity needs. We monitor our
cash levels and average maturity on a daily basis. Cash, cash equivalents, and
marketable securities include amounts to be used only to support our
securitization transactions of $3.4 billion and $3.7 billion at June 30, 2012
and December 31, 2011, respectively.
Our substantial liquidity and cash balance have provided the opportunity to
selectively call and repurchase our outstanding unsecured and asset-backed debt.
We repurchased unsecured and asset-backed debt of $165 million and $215 million
in the second quarter and first half of 2012, respectively.
Committed Liquidity Programs. We and our subsidiaries, including FCE, have
entered into agreements with a number of bank-sponsored asset-backed commercial
paper conduits ("conduits") and other financial institutions. Such
counterparties are contractually committed, at our option, to purchase from us
eligible retail or wholesale assets or to purchase or make advances under
asset-backed securities backed by retail, lease, or wholesale assets for
proceeds of up to $25.6 billion ($12.9 billion of retail, $8.5 billion of
wholesale, and $4.2 billion of lease assets) at June 30, 2012, of which about
$7.1 billion are commitments to FCE. These committed liquidity programs have
varying maturity dates, with $22.8 billion (of which $5.8 billion relates to FCE
commitments), having maturities within the next twelve months and the remaining
balance having maturities between September 2013 and August 2014. We plan to
achieve committed capacity renewals to protect our global funding needs,
optimize capacity utilization and maintain sufficient liquidity.
Our ability to obtain funding under these programs is subject to having a
sufficient amount of assets eligible for these programs as well as our ability
to obtain interest rate hedging arrangements for certain securitization
transactions. Our capacity in excess of eligible receivables protects us against
the risk of lower than planned renewal rates. At June 30, 2012, $9.4 billion of
these commitments were in use. These programs are free of material adverse
change clauses, restrictive financial covenants (for example, debt-to-equity
limitations and minimum net worth requirements), and generally, credit rating
triggers that could limit our ability to obtain funding. However, the unused
portion of these commitments may be terminated if the performance of the
underlying assets deteriorates beyond specified levels. Based on our experience
and knowledge as servicer of the related assets, we do not expect any of these
programs to be terminated due to such events.
Credit Facilities. At June 30, 2012, we and our majority-owned subsidiaries had
$721 million of contractually committed unsecured credit facilities with
financial institutions, including FCE's £440 million (equivalent to $690 million
at June 30, 2012) credit facility (the "FCE Credit Agreement") which matures in
2014. During the second quarter of 2012, FCE fully repaid the amount outstanding
under the FCE Credit Agreement and at June 30, 2012, we and our majority-owned
subsidiaries had $721 million available for use. The FCE Credit Agreement
contains certain covenants, including an obligation for FCE to maintain its
ratio of regulatory capital to risk weighted assets at no less than the
applicable regulatory minimum, and for the support agreement between FCE and us
to remain in full force and effect (and enforced by FCE to ensure that its net
worth is maintained at no less than $500 million). In addition to customary
payment, representation, bankruptcy, and judgment defaults, the FCE Credit
Agreement contains cross-payment and cross-acceleration defaults with respect to
other debt. At June 30, 2012, FCE had £55 million (equivalent to about $86
million) of commitments from financial institutions in Italy and Spain. There
were no commitments from financial institutions in Greece, Ireland or Portugal.
In addition, at July 1, 2012, we had about $6.6 billion of contractually
committed liquidity facilities provided by banks to support our FCAR program, of
which $300 million expires in 2012, $3.3 billion expires in 2013, and
$3.0 billion expires in 2014. Utilization of these facilities is subject to
conditions specific to the FCAR program and our having a sufficient amount of
eligible retail assets for securitization. The FCAR program must be supported by
liquidity facilities equal to at least 100% of its outstanding balance. At July
1, 2012, $6.6 billion of FCAR's bank liquidity facilities were available to
support FCAR's asset-backed commercial paper, subordinated debt, or FCAR's
purchase of our asset-backed securities. At July 1, 2012, the outstanding
commercial paper balance for the FCAR program was $5.6 billion.
Refer to the "Liquidity" section of Item 7 of Part II of our 2011 10-K Report
for a list of factors that could affect our liquidity.
We use leverage, or the debt-to-equity ratio, to make various business
decisions, including evaluating and establishing pricing for retail, wholesale,
and lease financing, and assessing our capital structure. We refer to our
shareholder's interest as equity.
The following table shows the calculation of our financial statement leverage
(in billions, except for ratios):
June 30, December 31,
Total debt $ 83.9 $ 84.7
Equity 9.1 8.9
Financial statement leverage (to 1) 9.2 9.5
The following table shows the calculation of our managed leverage (in billions,
except for ratios):
June 30, December 31,
Total debt $ 83.9
Adjustments for cash, cash equivalents, and marketable
(11.1 ) (12.1 )
Adjustments for derivative accounting (b) (0.8 ) (0.7 )
Total adjusted debt $ 72.0 $ 71.9
Equity $ 9.1 $ 8.9
Adjustments for derivative accounting (b) (0.2 ) (0.2 )
Total adjusted equity $ 8.9 $ 8.7
Managed leverage (to 1) (c) 8.1 8.3
(a) Excludes marketable securities related to insurance activities.
(b) Primarily related to market valuation adjustments to derivatives due to
movements in interest rates. Adjustments to debt are related to designated
fair value hedges and adjustments to equity are related to retained earnings.
(c) Equals total adjusted debt over total adjusted equity.
We plan our managed leverage by considering prevailing market conditions and the
risk characteristics of our business. At June 30, 2012, our managed leverage was
8.1 to 1 compared with 8.3 to 1 at December 31, 2011, significantly below the
threshold of 11.5 to 1 set forth in the Amended and Restated Support Agreement
Through June 30, 2012, we paid $300 million in distributions to our parent, Ford
Holdings LLC, including $200 million and $100 million in the first quarter and
second quarter, respectively. For additional information on our planned
distributions or managed leverage, refer to the "Outlook" section.
Accounting Standards Issued But Not Yet Adopted
For information on accounting standards issued but not yet adopted, see Note 1
of our Notes to the Financial Statements.
We continue to expect full year pre-tax profits of about $1.5 billion, and to
pay distributions to our parent for the full year of between $500 million and $1
billion. We will continue to assess future distributions based on our available
liquidity and managed leverage objectives. Ford Credit anticipates managed
receivables to be in the range of $110 billion to $120 billion by mid-decade.
Ford Credit now projects managed receivables to be in the range of $85 billion
to $90 billion at year end 2012. We also project managed leverage of 8-9:1 for
the foreseeable future, which is a decrease from the prior target of 10-11:1 and
is consistent with our goal of achieving and maintaining a strong investment
grade balance sheet. Lower leverage has resulted in a change to our mid-decade
outlook for return on equity from low double digits to high single digits.
Cautionary Statement Regarding Forward Looking Statements
Statements included or incorporated by reference herein may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are based on
expectations, forecasts and assumptions by our management and involve a number
of risks, uncertainties, and other factors that could cause actual results to
differ materially from those stated, including, without limitation:
• Decline in industry sales volume, particularly in the United States or
Europe, due to financial crisis, recession, geopolitical events or other
• Decline in Ford's market share or failure to achieve growth;
• Lower-than-anticipated market acceptance of new or existing Ford products;
• Market shift away from sales of larger, more profitable vehicles beyond
Ford's current planning assumption, particularly in the United States;
• An increase in fuel prices, continued volatility of fuel prices, or reduced
availability of fuel;
• Continued or increased price competition resulting from industry excess
capacity, currency fluctuations or other factors;
• Economic distress of suppliers that may require Ford to provide substantial
financial support or take other measures to ensure supplies of components
or materials and could increase Ford's costs, affect Ford's liquidity, or
cause production constraints or disruptions;
• Work stoppages at Ford or supplier facilities or other limitations on
production (whether as a result of labor disputes, natural or man-made
disasters, tight credit markets or other financial distress, information
technology issues, production constraints or difficulties, or other
• Single-source supply of components or materials;
• Restriction on use of tax attributes from tax law "ownership change";
• The discovery of defects in Ford vehicles resulting in delays in new model
launches, recall campaigns, reputational damage or increased warranty
• Increased safety, emissions, fuel economy or other regulation resulting in
higher costs, cash expenditures and/or sales restrictions;
• Unusual or significant litigation, governmental investigations or adverse
publicity arising out of alleged defects in Ford products, perceived
environmental impacts, or otherwise;
• A change in Ford's requirements for parts where it has entered into
long-term supply arrangements that commit it to purchase minimum or fixed
quantities of certain parts, or to pay a minimum amount to the seller
• Adverse effects on Ford's results from a decrease in or cessation or
clawback of government incentives related to capital investments;
Ford Credit Related:
• Inability to access debt, securitization or derivative markets around the
world at competitive rates or in sufficient amounts due to credit rating
downgrades, market volatility, market disruption, regulatory requirements
or other factors;
• Increased competition from banks or other financial institutions seeking to
increase their share of financing Ford vehicles;
• Higher-than-expected credit losses, lower-than-anticipated residual values
or higher-than-expected return volumes for leased vehicles;
• Cybersecurity risks to operational systems, security systems, or
infrastructure owned by us or a third-party vendor, or at a supplier
• New or increased credit, consumer or data protection or other laws and
regulations resulting in higher costs and/or additional financing
• Changes in Ford's operations or changes in Ford's marketing programs could
result in a decline in our financing volumes;
• Fluctuations in foreign currency exchange rates and interest rates;
• Adverse effects on Ford's or our operations resulting from economic,
geopolitical, or other events;
• Failure of financial institutions to fulfill commitments under committed
credit and liquidity facilities;
• Labor or other constraints on Ford's or our ability to maintain competitive
• Substantial pension and postretirement healthcare and life insurance
liabilities impairing Ford's or our liquidity or financial condition;
• Worse-than-assumed economic and demographic experience for postretirement
benefit plans (e.g., discount rates or investment returns); and
• Inherent limitations of internal controls impacting financial statements
and safeguarding of assets.
We cannot be certain that any expectations, forecasts, or assumptions made by
management in preparing these forward-looking statements will prove accurate, or
that any projections will be realized. It is to be expected that there may be
differences between projected and actual results. Our forward-looking statements
speak only as of the date of their initial issuance, and we do not undertake any
obligation to update or revise publicly any forward-looking statements, whether
as a result of new information, future events, or otherwise. For additional
discussion of these risk factors, see Item 1A of Part I of our 2011 10-K Report
and Item 1A of Part I of Ford's 2011 10-K Report.
Other Financial Information
With respect to the unaudited financial information of Ford Motor Credit Company
LLC as of June 30, 2012, and for the three-month and six-month periods ended
June 30, 2012 and 2011 included in this Form 10-Q, PricewaterhouseCoopers LLP
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their separate
report dated August 3, 2012 appearing herein states that they did not audit and
they do not express an opinion on that unaudited financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
PricewaterhouseCoopers LLP is not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their report on the unaudited financial
information because that report is not a "report" or a "part" of the
registration statement prepared or certified by PricewaterhouseCoopers LLP
within the meaning of Sections 7 and 11 of the Act.