SEC 10K Project:

SEC 10K Project:

SEC 10K Project:
Statement of Cash Flows (Ford F-150)
Respond to one or more question(s) from each of the three categories below.

Category: Operating Activities

1. Describe where Net Income is shown on the Statement of Cash Flows and state the amount. Refer back to the Income Statement to verify the amounts reported for Net
Income are equal.

2. What amount(s) is reported for depreciation and or amortization?

3. Are any gains or losses reported on the Statement of Cash Flows? If so, provide a summary of transaction(s) that resulted in the gains and or losses. [Hint: you
may need to review the Notes to Financial Statements to learn which transactions resulted in gains/losses].

Category: Investing and Financing Activities

1. Discuss any investment(s) (type and amount) purchased, sold, or retired during the current period?

2. Describe financing activities used by your corporation to increase cash (or other assets).

3. Discuss financing activities that reduced cash.

Category: Analysis

1. Calculate the following ratio for the most current year and comment on the results of your ratio analysis.

a. Free cash flow
Part 2
SEC 10-K Posting: search for the word “audit” in the SEC 10-K. Find the Auditor’s letter. Post the name of the auditors (ie KPMG is a major firm who signs many audit
reports). The audit report also mentions the concept of internal control. If you don’t see it, search for the phrase ‘internal control’ in your SEC 10-K document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-K
(Mark One)
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2016
or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____________________ to ____________________
Commission file number 1-6368
Ford Motor Credit Company LLC
(Exact name of registrant as specified in its charter)
Delaware 38-1612444
(State of organization) (I.R.S. employer identification no.)
One American Road, Dearborn, Michigan 48126
(Address of principal executive offices) (Zip code)
(313) 322-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each Exchange on which registered
4.050% Notes due December 10, 2018 New York Stock Exchange
3.700% Notes due March 11, 2019 New York Stock Exchange
3.588% Notes due June 2, 2020 New York Stock Exchange
3.350% Notes Due Nine Months or More from the Date
of Issue due August 20, 2026 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No
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. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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. (Check one):
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes 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 I(1)(a) and (b) of Form 10-K and is
therefore filing this Form with the reduced disclosure format.
Exhibit Index begins on page 64
i
FORD MOTOR CREDIT COMPANY LLC
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2016
Table of Contents Page
Part I
Item 1 Business
Overview
Consumer Financing
Non-Consumer Financing
Marketing and Special Programs
Servicing
Insurance
Employee Relations
Governmental Regulations
Certain Agreements with Ford and Affiliates
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Mine Safety Disclosures
Part II
Item 5 Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
Item 6 Selected Financial Data
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Results of Operations
Financing Shares and Contract Placement Volume
Financial Condition
Credit Risk
Residual Risk
Credit Ratings
Funding and Liquidity
Securitization Transactions
On-Balance Sheet Arrangements
Leverage
Aggregate Contractual Obligations
Critical Accounting Estimates
Accounting Standards Issued But Not Yet Adopted
Outlook
Risk Factors
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Overview
Market Risk
1
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3
5
5
6
7
8
8
10
11
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ii
Table of Contents (Continued) Page
Counterparty Risk
Operating Risk
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A Controls and Procedures
Item 9B Other Information
Part III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accounting Fees and Services
Part IV
Item 15 Exhibits and Financial Statement Schedules
Item 16 Form 10-K Summary
Signatures
Ford Motor Credit Company LLC and Subsidiaries Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Shareholder’s Interest
Consolidated Statement of Cash Flows
Notes to the Financial Statements
59
60
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60
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66
FC-1
FC-2
FC-2
FC-3
FC-4
FC-5
FC-6
1
PART I
ITEM 1. Business.
Overview
Ford Motor Credit Company LLC (referred to herein as “Ford Credit,” the “Company,” “we,” “our,” or “us”) was
incorporated in Delaware in 1959 and converted to a limited liability company in 2007. We are an indirect, wholly owned
subsidiary of Ford Motor Company (“Ford”). Our principal executive offices are located at One American Road, Dearborn,
Michigan 48126, and our telephone number is (313) 322-3000.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K filed with the
Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are
available free of charge through our website located at www.fordcredit.com/investor-center. These reports can also be
found on the SEC’s website located at www.sec.gov.
Our website and its content are not deemed to be incorporated by reference into this Annual Report on Form 10-K for
the year ended December 31, 2016 (“2016 Form 10-K Report” or “Report”) nor filed with the SEC.
Products and Services. We offer a wide variety of automotive financing products to and through automotive dealers
throughout the world. The predominant share of our business consists of financing Ford and Lincoln vehicles and
supporting the dealers of those brands. We earn our revenue primarily from:
• Payments made under retail installment sale and lease contracts that we originate and purchase;
• Interest rate supplements and other support payments from Ford and affiliated companies; and
• Payments made under dealer financing programs.
As a result of our financing activities, we have a large portfolio of finance receivables and operating leases which we
classify into two segments: “consumer” and “non-consumer.”
Finance receivables and operating leases in the consumer segment include products offered to individuals and
businesses that finance the acquisition of Ford and Lincoln vehicles from dealers for personal and commercial use. Retail
financing includes retail installment sale contracts for new and used vehicles and direct financing leases for new vehicles
to retail and commercial customers including leasing companies, government entities, daily rental companies, and fleet
customers.
Finance receivables in the non-consumer segment include products offered to automotive dealers and receivables
purchased from Ford and its affiliates. We make wholesale loans to dealers to finance the purchase of vehicle inventory
(floorplan financing), as well as loans to dealers to finance working capital and improvements to dealership facilities,
finance the purchase of dealership real estate, and finance other dealer vehicle programs. We also purchase receivables
from Ford and its affiliates, primarily related to the sale of parts and accessories to dealers, Ford-related loans, and
certain used vehicles from daily rental fleet companies.
We also service the finance receivables and leases we originate and purchase, make loans to Ford affiliates, and
provide insurance services related to our financing programs.
Geographic Scope of Operations and Segment Information. We conduct our financing operations directly and
indirectly through our subsidiaries and affiliates. We offer substantially similar products and services throughout many
different regions, subject to local legal restrictions and market conditions. We divide our business segments based on
geographic regions: North America (“North America Segment”) and International (“International Segment”). The North
America Segment includes our operations in the United States and Canada. The International Segment includes our
operations in all other countries in which we do business directly and indirectly. For additional financial information
regarding our operations by business segment and operations by geographic region, see Note 17 of our Notes to the
Financial Statements.
In the first quarter of 2017, we plan to begin reporting our business segments as follows: the Americas, Europe, and
Asia Pacific. Below is a description of our business segments as of December 31, 2016.
Item 1. Business (Continued)
2
North America Segment
Our United States operations accounted for 73% and 72% of our total managed receivables at year-end 2015 and
2016, respectively, and our Canadian operations accounted for 8% and 9% at year-end 2015 and 2016, respectively.
Managed receivables equal net finance receivables and net investment in operating leases, excluding unearned interest
supplements and residual support, allowance for credit losses, and other (primarily accumulated supplemental
depreciation). For additional information on how we review our business performance, including on a managed basis,
refer to the “Overview” section of Item 7 below. Managed receivables are discussed further in the “Financial Condition”
section of Item 7 below.
In the United States and Canada, under the Ford Credit and Lincoln Automotive Financial Services brand names, we
provide financing services to and through dealers of Ford and Lincoln vehicles.
International Segment
Our International Segment includes operations in three main regions: Europe, Asia Pacific, and Latin America. Our
Europe region is our largest international operation, accounting for 15% and 14% of our total managed receivables at
year-end 2015 and 2016, respectively. Within the International Segment our Europe region accounted for 79% and 75%
of our managed receivables at year-end 2015 and 2016, respectively. Our European operations are managed through a
United Kingdom-based subsidiary, FCE Bank plc (“FCE”), which operates in the United Kingdom and has branches in 11
other European countries. FCE also has operating subsidiaries in Switzerland, the Czech Republic, and Hungary that
provide a variety of retail and dealer financing. The United Kingdom and Germany are our largest markets in Europe,
representing 65% of FCE’s finance receivables and operating leases at year-end 2016. Customers and dealers in Italy,
France, and Spain are 22% of FCE’s finance receivables and operating leases at year-end 2016. FCE, through its
Worldwide Trade Financing (“WWTF”) division, provides financing to distributors and importers in about 70 countries
where Ford has no national sales company presence. In the Asia Pacific region, we operate in China and India. In the
Latin America region, we operate in Mexico, Brazil, and Argentina. Our operations include joint ventures with local
financial institutions and other third parties in various locations around the world. In addition, other private label
operations and alternative business arrangements exist in some markets.
Dependence on Ford
The predominant share of our business consists of financing Ford and Lincoln vehicles and supporting Ford and
Lincoln dealers. Any extended reduction or suspension of Ford’s production or sale of vehicles due to a decline in
consumer demand, work stoppage, governmental action, negative publicity or other event, or significant changes to
marketing programs sponsored by Ford would have an adverse effect on our business. Additional information about
Ford’s business, operations, production, sales, and risks can be found in Ford’s Annual Report on Form 10-K for the year
ended December 31, 2016 (“Ford’s 2016 Form 10-K Report”), filed separately with the SEC and incorporated by reference
as an exhibit to our 2016 Form 10-K Report (without financial statements and exhibits).
Ford has sponsored special financing programs available only through us. Under these programs, Ford makes
interest supplements or other support payments to us. These programs increase our financing volume and share of
financing sales of Ford and Lincoln vehicles. Similar programs may be offered in the future. For additional information
regarding interest supplements and other support costs received from affiliated companies, see Notes 4 and 5 of our
Notes to the Financial Statements.
Competition
The automotive financing business is highly competitive, due in part to web-based credit aggregation systems that
permit dealers to send, through standardized systems, retail credit applications to multiple finance sources to evaluate
financing options offered by these finance sources. Our principal competitors are:
• Banks;
• Independent finance companies;
• Credit unions;
• Leasing companies; and
• Other automobile manufacturers’ affiliated finance companies.
Item 1. Business (Continued)
3
We compete mainly on the basis of service and financing rate programs, including those sponsored by Ford. A key
foundation of our service is providing broad and consistent purchasing policies for retail installment sale and lease
contracts, and consistent support for dealer financing requirements across economic cycles. These policies have helped
us build strong relationships with Ford’s dealer network that enhance our competitiveness. Our ability to provide
competitive financing rates depends on effectively and efficiently originating, purchasing, and servicing our receivables,
and efficiently accessing the capital markets. We routinely monitor the capital markets and develop funding plans to
optimize our competitive position. Ford-sponsored special financing programs available only through us give us a
competitive advantage in providing financing to Ford dealers and their customers.
Seasonal Variations
As a finance company, we own and manage a large portfolio of receivables that are generated throughout the year
and are collected over a number of years, primarily in fixed monthly payments. As a result, our overall financing revenues
do not exhibit seasonal variations.
Consumer Financing
Overview and Purchasing Process
We provide financing services to customers for personal and commercial use through automotive dealers that have
established relationships with us. Our primary business consists of originating and purchasing retail installment sale and
lease contracts for new and used vehicles from Ford and Lincoln dealers. We report in our financial statements the
receivables from customers under installment sale contracts and certain leases with fleet customers as finance
receivables. We report in our financial statements most of our retail leases as net investment in operating leases with the
capitalized cost of the vehicles recorded as depreciable assets.
In general, we purchase from dealers retail installment sale contracts and lease contracts that meet our purchase
standards. These contracts primarily relate to the purchase or lease of new vehicles, but some are for used vehicles.
Dealers typically submit customer applications electronically. We automatically obtain information on the applicant
including a credit bureau score, if available. We use a proprietary scoring system that measures credit quality using
information in the credit application, proposed contract terms, credit bureau data, and other information we obtain. After a
proprietary risk score is generated, we decide whether to purchase a contract using a decision process based on a
judgmental evaluation of the applicant, the credit application, the proposed contract terms, credit bureau information
(e.g., FICO score), proprietary risk score, and other information. Our evaluation emphasizes the applicant’s ability to pay
and creditworthiness focusing on payment, affordability, applicant credit history, and stability as key considerations.
Purchase decisions are made within a framework of Ford Credit’s purchase quality and risk factor guidelines. Credit
applications are typically evaluated by our electronic decisioning process, which may approve or reject applications.
Retail Financing
The amount we pay for a retail installment sale contract is based on a negotiated vehicle purchase price agreed to
between the dealer and the retail customer, less vehicle trade-in allowance or down payment from the customer and
special marketing cash payments offered by Ford Credit and Ford, plus any additional products, such as insurance and
extended service plans, that are included in the contract. The net purchase price owed by the customer typically is paid
over a specified number of months with interest at a fixed rate negotiated between the dealer and the retail customer. The
dealer may retain a limited portion of the finance charge.
Item 1. Business (Continued)
4
We offer a variety of retail installment sale financing products. The average original term of our retail installment sale
contracts in the United States was 64 months and 65 months for contracts purchased in 2015 and 2016, respectively. A
small portion of our retail installment sale contracts have non-uniform payment periods and payment amounts to
accommodate special cash flow situations. We also offer a retail balloon product in Europe under which the retail
customer may finance a vehicle with an installment sale contract with a series of monthly payments followed by paying the
amount remaining in a single balloon payment. The customer can satisfy the balloon payment obligation by payment in
full of the amount owed, by refinancing the amount owed, or by returning the vehicle to us and paying additional charges
for excess mileage as well as excess wear and use, if any. Generally, we sell vehicles returned to us to Ford dealers and
non-Ford dealers through auctions.
In most markets, we hold a security interest in the vehicles purchased through retail installment sale contracts. This
security interest provides us certain rights and protections. As a result, if our collection efforts fail to bring a delinquent
customer’s payments current, we generally can repossess the customer’s vehicle, after satisfying local legal
requirements, and sell it at auction. The customer typically remains liable for any deficiency between net auction
proceeds and the defaulted contract obligations, including any repossession-related expenses. We generally require
retail customers to carry fire, theft, and collision insurance on financed vehicles.
Net Investment in Operating Leases
We offer leasing plans to retail customers through our dealers. Our highest volume retail-leasing plan is called Red
Carpet Lease, which is offered in the United States and Canada through dealers of Ford and Lincoln brands. Under these
plans, dealers originate the leases and offer them to us for purchase. Upon our purchase of a lease, we take ownership
of the lease and title to the leased vehicle from the dealer. After we purchase a lease from a dealer, the dealer generally
has no further obligation to us in connection with the lease. The customer is responsible for properly maintaining the
vehicle and is obligated to pay for excess wear and use as well as excess mileage, if any. At the end of the lease, the
customer has the option to purchase the vehicle for the price specified in the lease contract, or return the vehicle to the
dealer. If the customer returns the vehicle to the dealer, the dealer may buy the vehicle from us or return it to us. We sell
vehicles returned to us to Ford and non-Ford dealers through auctions.
The amount we pay to a dealer for a retail lease, also called the acquisition cost, is based on the negotiated vehicle
price agreed to by the dealer and the retail customer, less any vehicle trade-in allowance or down payment from the
customer and special marketing cash payments offered by Ford Credit and Ford, plus any additional products, such as
insurance and extended service plans, that are included in the contract. The customer makes monthly lease payments
based on the purchase price less the contractual residual value of the vehicle, plus lease charges. Some of our lease
programs, such as our Red Carpet Lease Advance Payment Plan, provide certain pricing advantages to customers who
make all or some monthly payments at lease inception or purchase refundable higher mileage allowances. We require
lease customers to carry fire, theft, liability, and collision insurance on leased vehicles. In the case of a contract default
and repossession, the customer typically remains liable for any deficiency between net auction proceeds and the
defaulted contract obligations, including any repossession-related expenses.
In the United States, operating lease terms for new vehicles range primarily from 24 to 39 months. In 2015 and 2016,
the average original lease term for contracts purchased was 34 months and 35 months, respectively.
Direct Financing Leases and Other Operating Lease Vehicle Financing
We offer vehicle-financing programs to retail and commercial customers including leasing companies, government
entities, daily rental companies, and fleet customers. These financings include primarily lease plans for terms of 24 to
60 months. We hold a security interest in financed vehicles in almost all instances and, where appropriate, an assignment
of rentals under any related leases. At the end of the finance term, a lease customer may be required to pay any shortfall
between the fair market value and the specified end of term value of the vehicle. If the fair market value of the vehicle at
the end of the finance term exceeds the specified end of term value, the lease customer may be paid the excess amount.
These financings are included in our consumer segment and reported as retail financing or net investment in operating
leases in our financial statements.
Item 1. Business (Continued)
5
Non-Consumer Financing
Overview
We extend credit to franchised dealers selling Ford and Lincoln vehicles primarily in the form of approved lines of
credit to purchase new and used vehicles. Each lending request is evaluated, taking into consideration the borrower’s
financial condition, supporting security, and numerous other financial and qualitative factors. Generally, receivables are
secured by the related vehicle or the related property and may also be secured by other dealer assets. Asset verification
processes are in place and include physical audits of vehicle inventories with increased audit frequency for higher-risk
dealers.
Dealer Financing
Wholesale Financing. We offer a wholesale financing program for qualifying dealers to finance new and used
vehicles held in inventory (also known as floorplan financing). We generally finance the vehicle’s wholesale invoice price
for new vehicles and up to 100% of the dealer’s purchase price for used vehicles. Dealers generally pay a floating
interest rate on wholesale loans. In the United States, the average new wholesale receivable, excluding the time the
vehicle was in transit from the assembly plant to the dealership, was outstanding for 60 days in 2015 compared with
70 days in 2016. Our wholesale financing program includes financing of large multi-brand dealer groups.
When a dealer uses our wholesale financing program to purchase vehicles, we obtain a security interest in the
vehicles and, in many instances, other assets of the dealer. In the United States and Canada, our wholly owned
subsidiary, The American Road Insurance Company (“TARIC”), generally provides insurance for vehicle damage and theft
of vehicles held in dealer inventory that are financed by us.
Dealer Loans. We make loans to dealers to finance the purchase of dealership real estate, to make improvements to
dealership facilities, and to provide working capital. These loans are typically secured by mortgages on dealership real
estate and/or by security interests in other dealership assets. In addition, these loans are generally supported by personal
guarantees from the individual owners of the dealership.
Other Dealer Financing. We also provide financing to qualified dealers for vehicles to be utilized for service
replacement and retail rental use. In addition, we provide financing to qualified daily rental companies for new and used
vehicles used in their operations.
Other Financing
We also purchase receivables from Ford and its affiliates, primarily related to the sale of parts and accessories to
dealers, receivables from Ford-related loans, and certain used vehicles from daily rental fleet companies. These
receivables are excluded from our credit quality reporting since the performance of this group of receivables is generally
guaranteed by Ford.
Marketing and Special Programs
We actively market our financing products and services to automotive dealers and customers. We demonstrate to
dealers the value of a business relationship with us through personal sales contacts, targeted advertisements in trade
publications, and participation in dealer-focused conventions and organizations. Our marketing strategy is based on our
belief that we can better assist dealers in achieving their sales, financial, and customer satisfaction goals by being a
reliable finance source with knowledgeable automotive and financial professionals offering personal attention and
interaction. We demonstrate our commitment to dealer relationships with a variety of materials, measurements, and
analyses showing the advantages of a full range of automotive financing products that allows consistent and predictable
single source financing. We promote increased dealer transactions through incentives, bonuses, contests, and selected
program and rate adjustments.
Item 1. Business (Continued)
6
We promote our retail financing products primarily through pre-approved credit offers to prospective customers,
point-of-sale information, and ongoing communications with existing customers. Our communications to these customers
promote the advantages of our financing products, the availability of special plans and programs, and the benefits of
affiliated products, such as extended warranties, service plans, insurance coverage, gap protection, and excess wear and
use waivers. We also emphasize the quality of our customer service and the ease of making payments and transacting
business with us. For example, through our web site located at www.fordcredit.com or via our mobile application a
customer can make inquiries, review an account balance, examine current incentives, schedule an electronic payment, or
qualify for a pre-approved credit offer.
We also market our non-consumer financing services with a specialized group of employees who make direct sales
calls on dealers and, often at the request of such dealers, on potential high-volume commercial customers. This group
also uses various materials to explain our flexible programs and services specifically directed at the needs of commercial
and fleet vehicle customers.
Servicing
Consumer Financing
After we purchase retail installment sale contracts and leases from dealers and other customers, we manage the
contracts during their contract terms. This management process is called servicing. We service the finance receivables
and leases we originate and purchase. Our servicing duties include the following:
• Applying monthly payments from customers;
• Maintaining a security interest in the financed vehicle;
• Providing billing statements to customers;
• Responding to customer inquiries;
• Releasing our security interest on paid-off finance contracts;
• Contacting delinquent customers for payment;
• Arranging for the repossession of vehicles; and
• Selling repossessed and returned vehicles.
Customer Payment Operations. Customers may make payments by mailing checks to a bank for deposit in a lockbox
account, through electronic payment services, a direct debit program, or a telephonic payment system.
Collections. We design our collection strategies and procedures to keep accounts current and to collect on delinquent
accounts. We employ a combination of proprietary and non-proprietary tools to assess the probability and severity of
default for all of our finance receivables and leases and implement our collection efforts based on our determination of the
credit risk associated with each customer. As each customer develops a payment history, we use an internally developed
behavioral scoring model to assist in determining the best collection strategies. Based on data from this scoring model,
contracts are categorized by collection risk. Our centralized collection operations are supported by auto-dialing
technology and proprietary collection and workflow operating systems. Through our auto-dialer program and our
monitoring and call log systems, we target our efforts on contacting customers about missed payments and developing
satisfactory solutions to bring accounts current.
Supplier Operations. We engage vendors to perform some of our servicing processes. These processes include
depositing monthly payments from customers, monitoring the perfection of security interests in financed vehicles, imaging
of contracts and electronic data file maintenance, generating retail and lease billing statements, providing telephonic
payment systems for retail customers, handling of some inbound and outbound collections calls, and recovering
deficiencies for selected accounts.
Payment Extensions. In our regular course of business we may offer payment extensions to customers. Each month
1% to 2% of our U.S. retail contracts outstanding are granted payment extensions. A payment extension allows the
customer to extend the term of the contract, usually by paying a fee that is calculated in a manner specified by law.
Before agreeing to a payment extension, the service representative reviews the customer’s payment history and current
financial situation and assesses the customer’s desire and capacity to make future payments. The service representative
decides whether the proposed payment extension complies with our policies and guidelines. Payment extensions are
reviewed regularly by Ford Credit’s servicing managers.
Item 1. Business (Continued)
7
Repossessions and Off-lease Vehicles. We view repossession of a financed or leased vehicle as a final step that we
undertake only after all other collection efforts have failed. Our North America systems also employ a web-based network
of outside contractors who support the repossession process. In all of our markets we sell repossessed vehicles and
apply the proceeds to the amount owed on the customer’s account. We continue to attempt collection of any deficient
amounts until the account is paid in full, we obtain mutually satisfactory payment arrangements with the debtor, or we
determine that the account is uncollectible.
We manage the sale of repossessed vehicles and returned leased vehicles. Repossessed vehicles are reported in
Other assets on our balance sheet at values that approximate expected net auction proceeds. We inspect and
recondition the vehicle to maximize the net auction value of the vehicle. Typically, repossessed vehicles are sold at open
auctions. Returned leased vehicles are predominantly sold through an on-line auction, closed auctions in which only Ford
and Lincoln dealers may participate, or at open auctions, in which any licensed dealer can participate.
Non-Consumer Financing
In the United States and Canada, we require dealers to submit monthly financial statements that we monitor for
potential credit deterioration. We assign an evaluation rating to each dealer, which among other things determines the
frequency of physical audits of vehicle inventory. We electronically audit vehicle inventory utilizing integrated systems
allowing us to access information from Ford reported sales. We monitor dealer inventory financing payoffs daily to detect
deviations from typical repayment patterns and take appropriate actions. If a dealer fails to make principal or interest
payments when due, we may take one or more of the following actions: demand payment of all or a portion of the related
receivables; suspend the dealer’s credit lines; secure the dealer’s inventory; require certified funds for all vehicles sold by
the dealer; or initiate legal actions to exercise rights under the floorplan financing agreement. If a loss appears imminent,
we will attempt to redistribute new vehicle inventory, liquidate all remaining collateral, enforce any third-party guarantees,
and charge off any remaining amounts as uncollectible.
We also provide financing to fleet purchasers, leasing companies, daily rental companies, and other commercial
customers. We generally review our exposure under these credit arrangements at least annually.
In our international markets, non-consumer financing is governed by the respective regional offices, executed within
the local markets, and similar risk management principles are applied.
Insurance
We conduct insurance underwriting operations primarily through TARIC in the United States and Canada. TARIC
offers a variety of products and services, including:
• Physical damage insurance coverage for Ford Credit financed vehicles at dealer locations;
• Physical damage insurance coverage for Ford and Lincoln vehicles in transit between final assembly plants and
dealer locations;
• Contractual liability insurance on extended service contracts for Ford and its affiliates; and
• Commercial automobile and general liability insurance and surety bonds for Ford in the United States.
TARIC invests premiums and other revenue to fund future claims, and has established investment guidelines and
strategies to reflect its risk tolerance, regulatory requirements, and rating agency considerations, among other factors.
TARIC is rated by A.M. Best Company on its financial strength and issuer credit rating. Since 2012, TARIC’s rating has
been A (Excellent) for its financial strength and “a” on its issuer credit rating.
We also offer various Ford-branded insurance products throughout the world underwritten by non-affiliated insurance
companies from which we receive fee income but the underwriting risk remains with the non-affiliated insurance
companies. Premiums from our insurance business generated 1% of our total revenues in 2015 and 2016.
Item 1. Business (Continued)
8
Employee Relations
We employed approximately 6,800 and 7,300 full-time employees worldwide at year-end 2015 and 2016, respectively.
Most employees are salaried and are not represented by a union. We consider employee relations to be satisfactory.
Governmental Regulations
As a finance company, we are highly regulated by the governmental authorities in the locations where we operate.
United States
Within the United States, our operations are subject to regulation, supervision, and licensing under various federal,
state, and local laws and regulations.
Federal Regulation. We are subject to federal regulation, including the Truth-in-Lending Act, the Consumer Leasing
Act, the Equal Credit Opportunity Act, and the Fair Credit Reporting Act. These laws require us to provide certain
disclosures to prospective purchasers and lessees in consumer retail and lease financing transactions and prohibit
discriminatory credit practices. The principal disclosures required under the Truth-in-Lending Act for retail financing
transactions include the terms of repayment, the amount financed, the total finance charge, and the annual percentage
rate. For retail lease transactions, under the Consumer Leasing Act, we are required to disclose the amount due at lease
inception, the terms for payment, and information about lease charges, insurance, excess mileage, wear and use
charges, and liability on early termination. The Equal Credit Opportunity Act prohibits creditors from discriminating against
credit applicants and customers on a variety of factors, including race, color, sex, age, or marital status. Pursuant to the
Equal Credit Opportunity Act, creditors are required to make certain disclosures regarding consumer rights and advise
consumers whose credit applications are not approved of the reasons for being denied. In addition, any of the credit
scoring systems we use during the application process or other processes must comply with the requirements for such
systems under the Equal Credit Opportunity Act. The Fair Credit Reporting Act requires us to provide certain information
to consumers whose credit applications are not approved on the basis of a consumer credit report obtained from a
national credit bureau and sets forth requirements related to identity theft, privacy, and enhanced accuracy in credit
reporting content. In addition, under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank
Act”), it is unlawful for us to engage in any unfair, deceptive or abusive act or practice. We are also subject to the
Servicemembers Civil Relief Act that prohibits us from charging interest in excess of 6% on transactions with customers
who subsequently enter into full-time service with the military and request such interest rate modification, and limits our
ability to collect future payments from such lease customers who terminate their lease early. We are subject to other
federal regulation, including the Gramm-Leach-Bliley Act, that requires us to maintain confidentiality and safeguard certain
consumer data in our possession and to communicate periodically with consumers on privacy matters. In addition, the
Consumer Financial Protection Bureau (“CFPB”) has broad rule-making and enforcement authority for a wide range of
consumer financial protection laws that regulate consumer finance businesses, such as Ford Credit’s retail automotive
financing business. For additional discussion of the CFPB, see “Item 1A. Risk Factors” below.
We are also subject to regulation in our funding and securitization activities, including requirements under federal
securities laws and specific rules and requirements for asset-backed securities. Derivatives activities are regulated under
the Commodities Exchange Act and Dodd-Frank Act. These regulations also impose operational and reporting
requirements for these funding transactions.
State Regulation – Licensing. In most states, a consumer credit regulatory agency regulates and enforces laws
relating to finance companies. Rules and regulations generally provide for licensing of finance companies, limitations on
the amount, duration, and charges, including interest rates, that can be included in finance contracts, requirements as to
the form and content of finance contracts and other documentation, and restrictions on collection practices and creditors’
rights. We must renew these licenses periodically. Moreover, several states have laws that limit interest rates on
consumer financing. In periods of high interest rates, these rate limitations could have an adverse effect on our
operations if we were unable to purchase retail installment sale contracts with finance charges that reflect our increased
costs. In certain states, we are subject to periodic examination by state regulatory authorities.
Item 1. Business (Continued)
9
State Regulation – Repossessions. To mitigate our credit losses, sometimes we repossess a financed or leased
vehicle. Repossessions are subject to prescribed legal procedures, including peaceful repossession, one or more
customer notifications, a prescribed waiting period prior to disposition of the repossessed vehicle, and return of personal
items to the customer. Some states provide the customer with reinstatement rights that require us to return a
repossessed vehicle to the customer in certain circumstances. Our ability to repossess and sell a repossessed vehicle is
restricted if a customer declares bankruptcy.
International
In some countries outside the United States, some of our subsidiaries, including FCE, are regulated and/or licensed
banking institutions and are required, among other things, to maintain minimum capital and liquidity. FCE is authorized by
the U.K. Prudential Regulation Authority (“PRA”) and regulated by the U.K. Financial Conduct Authority (“FCA”) and the
PRA to carry on a range of regulated activities within the U.K. Pursuant to the Capital Requirements Regulation and
Directive, CRD IV, FCE operates through a branch and subsidiary network in 14 other European countries. Under FCE’s
banking license, consumer credit and leasing activities are also passported to the European branches. In many other
locations where we operate, governmental authorities require us to obtain equivalent banking licenses to conduct our
business.
Regulatory Compliance Status
Based on our compliance management processes and procedures, we believe that we maintain all material licenses
and permits required for our current operations and are in material compliance with all laws and regulations applicable to
us and our operations. Failure to satisfy those legal and regulatory requirements could have a material adverse effect on
our operations, financial condition, reputation, and/or liquidity. Further, the adoption of new laws or regulations, or the
revision of existing laws and regulations, could have a material adverse effect on our operations, financial condition, and/
or liquidity.
We actively monitor proposed changes to relevant legal and regulatory requirements in order to maintain our
compliance. Through our governmental relations efforts, we also attempt to participate in the legislative and
administrative rule-making process on regulatory initiatives that impact finance companies. The cost of our ongoing
compliance efforts has not had a material adverse effect on our operations, financial condition, or liquidity.
For additional information on new or increased credit regulations, consumer or data protection regulations, or other
regulations, refer to “Item 1A. Risk Factors.”
Item 1. Business (Continued)
10
Certain Agreements with Ford and Affiliates
On April 30, 2015, we and Ford entered into an Amended and Restated Relationship Agreement (the “Relationship
Agreement”) relating to our long-standing business practices with Ford. A copy of the Relationship Agreement was filed
as an exhibit to our Current Report on Form 8-K dated April 30, 2015, and is incorporated by reference herein as an
exhibit. Pursuant to the Relationship Agreement, if our managed leverage for a calendar quarter were to be higher than
11.5 to 1 (as reported in our most recent Form 10-Q Report or Form 10-K Report), we can require Ford to make or cause
to be made a capital contribution to us in an amount sufficient to have caused such managed leverage to have been
11.5 to 1. No capital contributions have been made to us pursuant to the Relationship Agreement.
In addition to the foregoing, the other principal terms of the Relationship Agreement include the following:
• Any extension of credit from us to Ford or any of Ford’s automotive affiliates will be on arm’s length terms and will
be enforced by us in a commercially reasonable manner;
• We will not guarantee more than $500 million of the indebtedness of, make any investments in, or purchase any
real property or manufacturing equipment classified as an automotive asset from Ford or any of Ford’s automotive
affiliates;
• We will not be required by Ford or any of Ford’s automotive affiliates to accept credit or residual risk beyond what
we would be willing to accept acting in a prudent and commercially reasonable manner (taking into consideration
any interest rate supplements or residual value support payments, guarantees, or other subsidies that are
provided to us by Ford or any of Ford’s automotive affiliates);
• We and Ford are separate, legally distinct companies, and we will continue to maintain separate books and
accounts. We will prevent our assets from being commingled with Ford’s assets, and hold ourselves out as a
separate and distinct company from Ford and Ford’s automotive affiliates;
• Allocates to us $2 billion plus any commitments under the Chinese renminbi sub-facility as the amount we may
borrow as a Subsidiary Borrower under Ford’s corporate credit facility and requires us to reimburse Ford for a
proportionate amount of Ford’s costs under that credit facility; and
• Prohibits Ford from terminating Ford’s corporate credit facility prior to its maturity, or taking any other action that
would impair our ability to borrow under that credit facility, without our prior written consent.
We also have an agreement to maintain FCE’s net worth in excess of $500 million. No payments have been made to
FCE pursuant to the agreement during the 2001 through 2016 periods.
More information about agreements between us and Ford and other affiliates is contained in our Notes to the
Financial Statements, “Business – Overview,” “Business – Consumer Financing – Retail Financing,” “Business – NonConsumer
Financing – Other Financing,” and the description of Ford’s business in Exhibit 99.
11
ITEM 1A. Risk Factors.
We have listed below (not necessarily in order of importance or probability of occurrence) the most significant risk
factors applicable to Ford or Ford Credit:
Decline in industry sales volume, particularly in the United States, Europe, or China, due to financial crisis,
recession, geopolitical events, or other factors. Because Ford, like other manufacturers, has a high proportion of
relatively fixed structural costs, relatively small changes in industry sales volume can have a substantial effect on its cash
flow and profitability. If industry vehicle sales were to decline to levels significantly below Ford’s planning assumption,
particularly in the United States, Europe, or China, due to financial crisis, recession, geopolitical events, or other factors,
the decline could have a substantial adverse effect on Ford’s financial condition, results of operations, and cash flow.
Lower-than-anticipated market acceptance of Ford’s new or existing products or services, or failure to
achieve expected growth. Although Ford conducts extensive market research before launching new or refreshed
vehicles and introducing new services, many factors both within and outside Ford’s control affect the success of new or
existing products and services in the marketplace. Offering vehicles and services that customers want and value can
mitigate the risks of increasing price competition and declining demand, but products and services that are perceived to
be less desirable (whether in terms of price, quality, styling, safety, overall value, fuel efficiency, or other attributes) can
exacerbate these risks. With increased consumer interconnectedness through the internet, social media, and other
media, mere allegations relating to quality, safety, fuel efficiency, corporate social responsibility, or other key attributes can
negatively impact Ford’s reputation or market acceptance of its products or services, even where such allegations prove
to be inaccurate or unfounded. Further, Ford’s ability to successfully grow through investments in the area of emerging
opportunities depends on many factors, including advancements in technology, regulatory changes, and other factors that
are difficult to predict that may significantly affect the future of electrification, autonomy, and mobility.
Market shift away from sales of larger, more profitable vehicles beyond Ford’s current planning assumption,
particularly in the United States. A shift in consumer preferences away from larger, more profitable vehicles at levels
beyond Ford’s current planning assumption—whether because of spiking fuel prices, a decline in the construction
industry, government actions or incentives, or other reasons—could result in an immediate and substantial adverse effect
on Ford’s financial condition and results of operations.
Continued or increased price competition resulting from industry excess capacity, currency fluctuations, or
other factors. The global automotive industry is intensely competitive, with manufacturing capacity far exceeding current
demand. According to the December 2016 report issued by IHS Automotive, the global automotive industry is estimated
to have had excess capacity of about 32 million units in 2016. Industry overcapacity has resulted in many manufacturers
offering marketing incentives on vehicles in an attempt to maintain and grow market share; these incentives historically
have included a combination of subsidized financing or leasing programs, price rebates, and other incentives. As a result,
Ford is not necessarily able to set its prices to offset higher costs of marketing incentives, commodity or other cost
increases, or the impact of adverse currency fluctuations, including pricing advantages foreign competitors may have
because of their weaker home market currencies. Continuation of or increased excess capacity could have a substantial
adverse effect on Ford’s financial condition and results of operations.
Fluctuations in foreign currency exchange rates, commodity prices, and interest rates. As a resource-intensive
manufacturing operation, Ford and Ford Credit are exposed to a variety of market and asset risks, including the effects of
changes in foreign currency exchange rates, commodity prices, and interest rates. Ford and Ford Credit monitor and
manage these exposures as an integral part of their overall risk management program, which recognizes the
unpredictability of markets and seeks to reduce potentially adverse effects on our business. Nevertheless, changes in
currency exchange rates, commodity prices, and interest rates cannot always be predicted or hedged. In addition,
because of intense price competition and Ford’s high level of fixed costs, Ford may not be able to address such changes
even if foreseeable. As a result, substantial unfavorable changes in foreign currency exchange rates, commodity prices,
or interest rates could have a substantial adverse effect on Ford’s and/or Ford Credit’s financial condition and results of
operations.
Adverse effects resulting from economic, geopolitical, protectionist trade policies, or other events. With the
increasing interconnectedness of global economic and financial systems, a financial crisis, natural disaster, geopolitical
crisis, or other significant event in one area of the world can have an immediate and material adverse impact on markets
around the world.
Item 1A. Risk Factors (Continued)
12
Concerns persist regarding the overall stability of the European Union, given the diverse economic and political
circumstances of individual European currency area (“euro area”) countries. These concerns have been exacerbated by
Brexit, which, among other things, has resulted in a weaker sterling versus U.S. dollar and euro. Ford has a sterling
revenue exposure and a euro cost exposure; a sustained weakening of sterling against euro may have an adverse effect
on Ford’s profitability. Further, the United Kingdom may be at risk of losing access to free trade agreements for goods and
services with the European Union and other countries, which may result in increased tariffs on U.K. imports and exports
that could have an adverse effect on Ford’s profitability.
FCE is a bank authorized by the U.K. government to carry on a range of regulated activities within the United
Kingdom and through a branch network in 11 other European countries through a passporting system, which allows it to
establish or provide its services in the EU27 without further authorization requirements. If passporting arrangements
cease to be effective as a result of Brexit, FCE could be required to reconsider its structure or seek additional
authorizations to continue to do business in the EU27, which may be time-consuming and costly.
The economic and policy uncertainty on-going in the euro area highlights potential longer-term risks regarding its
sustainability. This uncertainty could cause financial and capital markets within and outside Europe to constrict, thereby
negatively impacting our ability to finance our business, or, if a country within the euro area were to default on its debt or
withdraw from the euro currency, or–in a more extreme circumstance–the euro currency were to be dissolved entirely, the
impact on markets around the world, and on Ford’s global business, could be immediate and significant.
In addition, Ford has operations in various markets with volatile economic or political environments and is pursuing
growth opportunities in a number of newly developed and emerging markets. These investments may expose Ford to
heightened risks of economic, geopolitical, or other events, including governmental takeover (i.e., nationalization) of
Ford’s manufacturing facilities or intellectual property, restrictive exchange or import controls, disruption of operations as a
result of systemic political or economic instability, outbreak of war or expansion of hostilities, and acts of terrorism, each of
which could have a substantial adverse effect on Ford’s financial condition and results of operations. Further, the U.S.
government, other governments, and international organizations could impose additional sanctions that could restrict Ford
and Ford Credit from doing business directly or indirectly in or with certain countries or parties, which could include
affiliates.
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, production constraints
or difficulties, or other factors). A work stoppage or other limitation on production could occur at Ford or supplier
facilities for any number of reasons, including as a result of disputes under existing collective bargaining agreements with
labor unions or in connection with negotiation of new collective bargaining agreements, or as a result of supplier financial
distress or other production constraints or difficulties, or for other reasons. A work stoppage or other limitations on
production at Ford or supplier facilities for any reason (including but not limited to labor disputes, natural or man-made
disasters, tight credit markets or other financial distress, or production constraints or difficulties) could have a substantial
adverse effect on Ford’s financial condition and results of operations.
Single-source supply of components or materials. Many components used in Ford’s vehicles are available only
from a single supplier and cannot be re-sourced quickly or inexpensively to another supplier (due to long lead times, new
contractual commitments that may be required by another supplier before ramping up to provide the components or
materials, etc.). In addition to the general risks described above regarding interruption of supplies, which are exacerbated
in the case of single-source suppliers, the exclusive supplier of a key component potentially could exert significant
bargaining power over price, quality, warranty claims, or other terms relating to a component.
Labor or other constraints on Ford’s ability to maintain competitive cost structure. Substantially all of the
hourly employees in Ford’s Automotive operations in the United States and Canada are represented by unions and
covered by collective bargaining agreements. These agreements provide guaranteed wage and benefit levels throughout
the contract term and some degree of income security, subject to certain conditions. As a practical matter, these
agreements may restrict Ford’s ability to close plants and divest businesses. A substantial number of Ford’s employees in
other regions are represented by unions or government councils, and legislation or custom promoting retention of
manufacturing or other employment in the state, country, or region may constrain as a practical matter Ford’s ability to sell
or close manufacturing or other facilities.
Item 1A. Risk Factors (Continued)
13
Substantial pension and other postretirement liabilities impairing liquidity or financial condition. Ford has
defined benefit retirement plans in the United States that cover many of its hourly and salaried employees. Ford also
provides pension benefits to non-U.S. employees and retirees, primarily in Europe. In addition, Ford and certain of its
subsidiaries sponsor plans to provide other postretirement benefits (“OPEB”) for retired employees (primarily health care
and life insurance benefits). These benefit plans impose significant liabilities on Ford and could require Ford to make
additional cash contributions, which could impair Ford’s liquidity. If Ford’s cash flows and capital resources were
insufficient to meet any pension or OPEB obligations, Ford could be forced to reduce or delay investments and capital
expenditures, suspend dividend payments, seek additional capital, or restructure or refinance its indebtedness.
Worse-than-assumed economic and demographic experience for pension and other postretirement benefit
plans (e.g., discount rates or investment returns). The measurement of Ford’s obligations, costs, and liabilities
associated with benefits pursuant to its pension and other postretirement benefit plans requires that Ford estimate the
present value of projected future payments to all participants. Ford uses many assumptions in calculating these
estimates, including assumptions related to discount rates, investment returns on designated plan assets, and
demographic experience (e.g., mortality and retirement rates). Ford generally remeasures these estimates at each year
end, and recognizes any gains or losses associated with changes to its plan assets and liabilities in the year incurred. To
the extent actual results are less favorable than Ford’s assumptions, Ford may recognize a substantial remeasurement
loss in its results.
Restriction on use of tax attributes from tax law “ownership change.” Section 382 of the U.S. Internal Revenue
Code restricts the ability of a corporation that undergoes an ownership change to use its tax attributes, including net
operating losses and tax credits (“Tax Attributes”). For these purposes, an ownership change occurs if 5 percent
shareholders of an issuer’s outstanding common stock, collectively, increase their ownership percentage by more than 50
percentage points over a rolling three-year period. At December 31, 2016, Ford had Tax Attributes that would offset more
than $15 billion of taxable income. In 2015, Ford renewed for an additional three-year period its tax benefit preservation
plan (the “Plan”) to reduce the risk of an ownership change under Section 382. Under the Plan, shares held by any
person who acquires, without the approval of Ford’s Board of Directors, beneficial ownership of 4.99% or more of Ford’s
outstanding Common Stock could be subject to significant dilution. Ford’s shareholders approved the renewal at Ford’s
annual meeting in May 2016.
The discovery of defects in vehicles resulting in delays in new model launches, recall campaigns, or
increased warranty costs. Government safety standards require manufacturers to remedy defects related to vehicle
safety through safety recall campaigns, and a manufacturer is obligated to recall vehicles if it determines that the vehicles
do not comply with a safety standard. The National Highway Traffic Safety Administration’s (“NHTSA”) enforcement
strategy has shifted to a significant increase in civil penalties levied and the use of consent orders requiring direct
oversight by NHTSA of certain manufacturers’ safety processes, a trend that could continue. Should Ford or government
safety regulators determine that a safety or other defect or a noncompliance exists with respect to certain of Ford’s
vehicles prior to the start of production, the launch of such vehicle could be delayed until such defect is remedied. The
costs associated with any protracted delay in new model launches necessary to remedy such defects, or the cost of recall
campaigns or warranty costs to remedy such defects in vehicles that have been sold, could be substantial. Such recall
and customer satisfaction actions may relate to defective components Ford receives from suppliers. The cost to complete
a recall or customer satisfaction action could be exacerbated to the extent such action relates to a global platform.
Furthermore, launch delays or recall actions could adversely affect Ford’s reputation or market acceptance of its products
as discussed above under “Lower-than-anticipated market acceptance of Ford’s new or existing products or services, or
failure to achieve expected growth.”
Increased safety, emissions, fuel economy, or other regulations resulting in higher costs, cash expenditures,
and/or sales restrictions. The worldwide automotive industry is governed by a substantial amount of government
regulation, which often differs by state, region, and country. Government regulation has arisen, and proposals for
additional regulation are advanced, primarily out of concern for the environment (including concerns about the possibility
of global climate change and its impact), vehicle safety, and energy independence. For example, as discussed under
“Item 1. Business – Governmental Standards” in Ford’s 2016 Form 10-K Report, in the United States the CAFE standards
for light duty vehicles increase sharply to 51.4 mpg by the 2025 model year; EPA’s parallel CO2 emission regulations
impose similar standards. California’s ZEV rules also mandate steep increases in the sale of electric vehicles and other
advanced technology vehicles beginning in the 2018 model year. In addition, many governments regulate local product
content and/or impose import requirements as a means of creating jobs, protecting domestic producers, and influencing
the balance of payments.
Item 1A. Risk Factors (Continued)
14
In recent years, Ford has made significant changes to its product cycle plan to improve the overall fuel economy of
vehicles Ford produces, thereby reducing their GHG emissions. There are limits on Ford’s ability to achieve fuel economy
improvements over a given time frame, however, primarily relating to the cost and effectiveness of available technologies,
consumer acceptance of new technologies and changes in vehicle mix, willingness of consumers to absorb the additional
costs of new technologies, the appropriateness (or lack thereof) of certain technologies for use in particular vehicles, the
widespread availability (or lack thereof) of supporting infrastructure for new technologies, and the human, engineering,
and financial resources necessary to deploy new technologies across a wide range of products and powertrains in a short
time. The current fuel economy, CO2, and ZEV standards will be difficult to meet if fuel prices remain relatively low and
market conditions do not drive consumers to purchase electric vehicles and other highly fuel-efficient vehicles in large
numbers.
The U.S. government has pursued an enforcement action against a major competitor of Ford in connection with its
alleged use of “defeat devices” in hundreds of thousands of light duty diesel vehicles, collecting billions of dollars for
environmental remediation projects and civil penalties. Several of the competitor’s employees have been indicted on
charges of committing federal crimes. The competitor also faces various class action suits, as well as numerous claims
and investigations by various U.S. states and other nations. The emergence of this issue has led to increased scrutiny of
automaker emission testing by regulators around the world, which in turn has triggered investigations of other
manufacturers. These events may lead to new regulations, more stringent enforcement programs, requests for field
actions, and/or delays in regulatory approvals. The cost to comply with existing government regulations is substantial and
additional regulations or changes in consumer preferences that affect vehicle mix could have a substantial adverse impact
on Ford’s financial condition and results of operations. In addition, a number of governments, as well as nongovernmental
organizations, publicly assess vehicles to their own protocols. The protocols could change aggressively,
and any negative perception regarding the performance of Ford’s vehicles subjected to such tests could reduce future
sales.
Unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged
defects in products, perceived environmental impacts, or otherwise. Ford spends substantial resources ensuring
that it complies with governmental safety regulations, mobile and stationary source emissions regulations, and other
standards. Compliance with governmental standards, however, does not necessarily prevent individual or class actions,
which can entail significant cost and risk. In certain circumstances, courts may permit tort claims even where Ford’s
vehicles comply with federal and/or other applicable law. Furthermore, simply responding to actual or threatened litigation
or government investigations of Ford’s compliance with regulatory standards, whether related to Ford’s products or
business or commercial relationships, may require significant expenditures of time and other resources. Litigation also is
inherently uncertain, and Ford could experience significant adverse results. In addition, adverse publicity surrounding an
allegation may cause significant reputational harm that could have a significant adverse effect on Ford’s sales.
Adverse effects on results from a decrease in or cessation or clawback of government incentives related to
investments. Ford receives economic benefits from national, state, and local governments in various regions of the
world in the form of incentives designed to encourage manufacturers to establish, maintain, or increase investment,
workforce, or production. These incentives may take various forms, including grants, loan subsidies, and tax abatements
or credits. The impact of these incentives can be significant in a particular market during a reporting period. For example,
most of Ford’s manufacturing facilities in South America are located in Brazil, where the state or federal governments
have historically offered, and continue to offer, significant incentives to manufacturers to encourage capital investment,
increase manufacturing production, and create jobs. As a result, the performance of Ford’s South American operations
has been impacted favorably by government incentives to a substantial extent. In Brazil, however, the federal government
has levied assessments against Ford concerning Ford’s calculation of federal incentives it received, and certain states
have challenged the grant to Ford of tax incentives by the state of Bahia, including a constitutional challenge of state
incentives that is pending in Brazil’s Supreme Court. A decrease in, expiration without renewal of, or other cessation or
clawback of government incentives for any of Ford’s business units, as a result of administrative decision or otherwise,
could have a substantial adverse impact on Ford’s financial condition and results of operations. See “Item 3. Legal
Proceedings” in Ford’s 2016 Form 10-K Report for a discussion of tax proceedings in Brazil and the potential requirement
for Ford to post collateral.
Item 1A. Risk Factors (Continued)
15
Cybersecurity risks to operational systems, security systems, or infrastructure owned by Ford, Ford Credit,
or a third-party vendor or supplier. Ford and Ford Credit are at risk for interruptions, outages, and breaches of:
(i) operational systems (including business, financial, accounting, product development, consumer receivables, data
processing, or manufacturing processes); (ii) facility security systems; and/or (iii) in-vehicle systems or mobile devices.
Such cyber incidents could materially disrupt operational systems; result in loss of trade secrets or other proprietary or
competitively sensitive information; compromise personally identifiable information of customers, employees, or others;
jeopardize the security of Ford’s or Ford Credit’s facilities; and/or affect the performance of in-vehicle systems. A cyber
incident could be caused by malicious third parties using sophisticated, targeted methods to circumvent firewalls,
encryption, and other security defenses, including hacking, fraud, trickery, or other forms of deception. The techniques
used by third parties change frequently and may be difficult to detect for long periods of time. A significant cyber incident
could impact production capability, harm Ford’s or Ford Credit’s reputation and/or subject Ford or Ford Credit to regulatory
actions or litigation.
Failure of financial institutions to fulfill commitments under committed credit and liquidity facilities. Under
Ford’s corporate credit facility, Ford is able to borrow, repay, and then re-borrow up to $13.4 billion. Certain of Ford’s
subsidiaries have standby or revolving credit facilities on which they depend for liquidity. If the financial institutions that
provide commitments under Ford’s corporate credit facility, Ford’s subsidiaries’ standby or revolving credit facilities, or
other committed credit facilities were to default on their obligation to fund the commitments, these facilities would not be
available to Ford, which could substantially adversely affect Ford’s liquidity and financial condition. At
December 31, 2016, Ford Credit had $19.5 billion of committed asset-backed security (“ABS”) and credit facilities
available for use for which Ford Credit pays commitment fees. To the extent the financial institutions that provide these
commitments were to default on their obligation to fund the commitments, these funds would not be available to Ford
Credit.
Inability of Ford Credit 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. Ford Credit’s ability to obtain unsecured funding at a reasonable cost is dependent on
its credit ratings or its perceived creditworthiness. Ford Credit’s ability to obtain securitized funding under its committed
asset-backed liquidity programs and certain other asset-backed securitization transactions is subject to having a sufficient
amount of assets eligible for these programs, as well as Ford Credit’s ability to obtain appropriate credit ratings and, for
certain committed programs, derivatives to manage the interest rate risk. Over time, and particularly in the event of any
credit rating downgrades, market volatility, market disruption, or other factors, Ford Credit may reduce the amount of
receivables it purchases or originates because of funding constraints. In addition, Ford Credit may be limited in the
amount of receivables it purchases or originates in certain countries or regions if the local capital markets, particularly in
developing countries, do not exist or are not adequately developed. Similarly, Ford Credit may reduce the amount of
receivables it purchases or originates if there is a significant decline in the demand for the types of securities it offers or
Ford Credit is unable to obtain derivatives to manage the interest rate risk associated with its securitization transactions.
A significant reduction in the amount of receivables Ford Credit purchases or originates would significantly reduce its
ongoing profits and could adversely affect its ability to support the sale of Ford vehicles.
Item 1A. Risk Factors (Continued)
16
Higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return
volumes for leased vehicles. Credit risk is the possibility of loss from a customer’s or dealer’s failure to make payments
according to contract terms. Credit risk (which is heavily dependent upon economic factors including unemployment,
consumer debt service burden, personal income growth, dealer profitability, and used car prices) has a significant impact
on Ford Credit’s business. The level of credit losses Ford Credit may experience could exceed its expectations and
adversely affect its financial condition and results of operations. In addition, Ford Credit projects expected residual values
(including residual value support payments from Ford) and return volumes for the vehicles it leases. Actual proceeds
realized by Ford Credit upon the sale of returned leased vehicles at lease termination may be lower than the amount
projected, which would reduce the profitability of the lease transaction. Among the factors that can affect the value of
returned lease vehicles are the volume of vehicles returned, economic conditions, and quality or perceived quality, safety,
fuel efficiency, or reliability of the vehicles. Actual return volumes may be higher than expected and can be influenced by
contractual lease-end values relative to auction values, marketing programs for new vehicles, and general economic
conditions. Each of these factors, alone or in combination, has the potential to adversely affect Ford Credit’s profitability if
actual results were to differ significantly from Ford Credit’s projections.
Increased competition from banks, financial institutions, or other third parties seeking to increase their share
of financing Ford vehicles. No single company is a dominant force in the automotive finance industry. Most of Ford
Credit’s competitors in the United States use credit aggregation systems that permit dealers to send, through
standardized systems, retail credit applications to multiple finance sources to evaluate financing options offered by these
sources. Also, direct on-line or large dealer group financing options provide consumers with alternative finance sources
and/or increased pricing transparency. All of these financing alternatives drive greater competition based on financing
rates and terms. Competition from such institutions and alternative finance sources could adversely affect Ford Credit’s
profitability and the volume of its retail business. In addition, Ford Credit may face increased competition on wholesale
financing for Ford dealers.
New or increased credit regulations, consumer or data protection regulations, or other regulations resulting
in higher costs and/or additional financing restrictions. As a finance company, Ford Credit is highly regulated by
governmental authorities in the locations in which it operates, which can impose significant additional costs and/or
restrictions on its business. In the United States, for example, Ford Credit’s operations are subject to regulation,
supervision, and licensing under various federal, state, and local laws and regulations, including the federal Truth-inLending
Act, Consumer Leasing Act, Equal Credit Opportunity Act, and Fair Credit Reporting Act.
The Dodd-Frank Act directs federal agencies to adopt rules to regulate the consumer finance industry and the capital
markets and gives the CFPB broad rule-making and enforcement authority for a wide range of consumer financial
protection laws that regulate consumer finance businesses, such as Ford Credit’s retail automotive financing business.
Exercise of these powers by the CFPB may increase the costs of, impose additional restrictions on, or otherwise
adversely affect companies in the automotive finance business. The CFPB has authority to supervise and examine the
largest nonbank automotive finance companies, such as Ford Credit, for compliance with consumer financial protection
laws.
In some countries outside the United States, some of Ford Credit’s subsidiaries are regulated banking institutions and
are required, among other things, to maintain minimum capital and liquidity. In many other locations, governmental
authorities require companies to have licenses in order to conduct financing businesses. Compliance with these laws and
regulations imposes additional costs on Ford Credit and affects the conduct of its business. Additional regulation could
add significant cost or operational constraints that might impair Ford Credit’s profitability.
ITEM 1B. Unresolved Staff Comments.
None.
17
ITEM 2. Properties.
We own our world headquarters in Dearborn, Michigan. We lease our corporate offices in Brentwood, England from
an affiliate of Ford. Most of our automotive finance branches and business centers are located in leased properties. The
continued use of any of these leased properties is not material to our operations. At December 31, 2016, our total future
rental commitment under leases of real property was $47 million.
We operate through four business centers in the United States and two business centers in Canada.
United States: Colorado Springs, Colorado Greenville, South Carolina
Tampa, Florida Nashville, Tennessee
Canada: Edmonton, Alberta Oakville, Ontario
Each of the U.S. business centers generally services dealers and customers located within its region. All of our U.S.
business centers are electronically linked and workload can be allocated across these centers. In addition, our Canadian
business centers share a similar electronic linkage and workload allocation capability.
We also have three specialty centers in North America that focus on specific activities:
• Customer Service Center – Omaha, Nebraska;
• Loss Prevention Center – Irving, Texas; and
• National Recovery Center – Mesa, Arizona.
In Europe, we have a service center in Manchester, England that services our U.K. dealers and customers and
dealers from multiple European countries. We also have a service center in Cologne, Germany to service our German
dealers and customers. In other countries, we provide servicing through our local branches and subsidiaries.
18
ITEM 3. Legal Proceedings.
Various legal actions, proceedings, and claims (generally, “matters”) are pending or may be instituted or asserted
against us. These include but are not limited to matters arising out of governmental regulations; tax matters; alleged
illegal acts resulting in fines or penalties; financial services; employment-related matters; dealer and other contractual
relationships; personal injury matters; investor matters; and financial reporting matters. Certain of the pending legal
actions are, or purport to be, class actions. Some of the matters involve or may involve claims for compensatory, punitive,
or antitrust or other treble damages in very large amounts, sanctions, assessments, or other relief, which, if granted,
would require very large expenditures. Our significant pending matter is summarized below:
Ford Motor Credit Company v. Sudesh Agrawal. On January 18, 2011, a state trial court judge in Cuyahoga County,
Ohio certified a nationwide class action with an Ohio subclass in a counterclaim arising out of a collection action. Class
claimants allege breach of contract, fraud, and statutory violations for Ford Credit’s lease-end wear and use charges.
Class claimants allege that the standard applied by Ford Credit in determining the condition of vehicles at lease-end is
different than the standard set forth in claimants’ leases. The Court of Appeals of Ohio, Eighth Appellate District, affirmed
nationwide class certification and certification of an Ohio subclass. We appealed, and on December 17, 2013, the
Supreme Court of Ohio reversed the Court of Appeals and remanded the case for further proceedings. On
March 13, 2014, the Court of Appeals reversed the trial court order certifying the classes and remanded the case for
further proceedings. On September 28, 2015, the trial court re-certified a nationwide class action with an Ohio subclass.
We appealed, and on September 22, 2016, the Court of Appeals reversed the trial court order certifying the classes and
remanded the case for further proceedings.
The litigation process is subject to many uncertainties, and the outcome of individual matters is not predictable with
assurance. It is reasonably possible that matters could be decided unfavorably to us. Although the amount of liability at
December 31, 2016, with respect to litigation matters cannot be ascertained, we believe that any resulting liability would
not materially affect our operations, financial condition, or liquidity.
In addition, any litigation, investigation, proceeding, or claim against Ford that results in Ford incurring significant
liability, expenditures, or costs could also have a material adverse effect on our operations, financial condition, or liquidity.
For a discussion of pending significant cases against Ford, see Item 3 in Ford’s 2016 Form 10-K Report.
ITEM 4. Mine Safety Disclosures.
Not applicable.
19
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities.
At December 31, 2016, all of our Shares were owned by Ford Holdings LLC, a wholly owned subsidiary of Ford. We
did not issue or sell any equity interests during 2016, and there is no market for our Shares. We paid cash distributions to
our parent of $250 million and $0 in 2015 and 2016, respectively.
ITEM 6. Selected Financial Data.
Not required.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Our primary focus is to profitably support the sale of Ford and Lincoln vehicles. We work with Ford to maximize
customer and dealer satisfaction and loyalty, offering a wide variety of financing products and outstanding service. We
continually improve processes focusing on the customer and the dealer to manage costs and ensure the efficient use of
capital. As a result, Ford Credit is uniquely positioned to drive incremental sales, improve customer satisfaction and
owner loyalty to Ford, and direct profits and distributions back to Ford to support its overall business, including vehicle
development.
We leverage three fundamental strategies in the management of our operations. The first is to employ prudent
origination practices while maintaining a managed level of risk. The second is to have efficient and effective servicing and
collection practices. The third is to fund the business efficiently while managing our balance sheet risk.
Generation of Revenue, Income, and Cash
The principal factors that influence our earnings are the amount and mix of finance receivables, operating leases, and
financing margins. The performance of these receivables and leases over time, mainly through the impact of credit losses
and variations in the residual value of leased vehicles, also affects our earnings.
The amount of our finance receivables and operating leases depends on many factors, including:
• The volume of new and used vehicle sales and leases;
• The extent to which we purchase retail installment sale and lease contracts and the extent to which we provide
wholesale financing;
• The sales price of the vehicles financed;
• The level of dealer inventories;
• Ford-sponsored special financing programs available exclusively through us; and
• The availability of cost-effective funding for the purchase of retail installment sale and lease contracts and to
provide wholesale financing.
For finance receivables, financing margin equals the difference between revenue earned on finance receivables and
the cost of borrowed funds. For operating leases, financing margin equals revenue earned on operating leases, less
depreciation expense and the cost of borrowed funds. Interest rates earned on most receivables and rental charges on
operating leases generally are fixed at the time the contracts are originated. On some receivables, primarily dealer
financing, we charge interest at a floating rate that varies with changes in short-term interest rates.
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
20
Business Performance
We review our business performance on a managed basis. Receivables for the North America and International
Segments are presented on a managed basis, as it closely approximates the customer’s outstanding balance on the
receivables, which is the basis for earning revenue. Our managed receivables equal net finance receivables and net
investment in operating leases, excluding unearned interest supplements and residual support, allowance for credit
losses, and other (primarily accumulated supplemental depreciation). To evaluate our performance we monitor a number
of measures, such as delinquencies, repossession statistics, losses on repossessions, and the number of bankruptcy
filings.
We measure the performance of our North America and International Segments primarily on an income before income
taxes basis, after excluding the impact to earnings from gains and losses related to market valuation adjustments to
derivatives primarily related to movements in interest rates. These adjustments are included in unallocated risk
management and are excluded in assessing our North America and International Segment performance because they are
carried out on a centralized basis at the corporate level. We also adjust segment performance to re-allocate interest
expense between the North America and International Segments reflecting debt and equity levels proportionate to their
product risk. For additional information regarding our segments, see Note 17 of our Notes to the Financial Statements.
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
21
Results of Operations
Overview
In general, we measure period-to-period changes in pre-tax results using the causal factors listed below:
• Volume and Mix – Volume and Mix are primarily reflected within Net financing margin on the income statement.
Volume primarily measures changes in net financing margin driven by changes in average managed receivables
at prior period financing margin yield (defined below in financing margin) at prior period exchange rates. Volume
changes are primarily driven by the volume of new and used vehicle sales and leases, the extent to which we
purchase retail installment sale and lease contracts, the extent to which we provide wholesale financing, the sales
price of the vehicles financed, the level of dealer inventories, Ford-sponsored special financing programs
available exclusively through us, and the availability of cost-effective funding for the purchase of retail installment
sale and lease contracts and to provide wholesale financing.
Mix primarily measures changes in net financing margin driven by period over period changes in the composition
of our average managed receivables by product and by country or region.
• Financing Margin – Financing Margin is reflected within Net financing margin on the income statement.
Financing margin variance is the period-to-period change in financing margin yield multiplied by the present
period average managed receivables at prior period exchange rates. This calculation is performed at the product
and country level and then aggregated. Financing margin yield equals revenue, less interest expense and
scheduled depreciation for the period, divided by average managed receivables for the same period.
Financing margin changes are driven by changes in revenue and interest expense. Changes in revenue are
primarily driven by the level of market interest rates, cost assumptions in pricing, mix of business, and competitive
environment. Changes in interest expense are primarily driven by the level of market interest rates, borrowing
spreads, and asset-liability management.
• Credit Loss – Credit Loss is reflected within the Provision for credit losses on the income statement.
Credit loss is the change in the provision for credit losses at prior period exchange rates. For analysis purposes,
management splits the provision for credit losses into net charge-offs and the change in the allowance for
credit losses.
Net charge-off changes are primarily driven by the number of repossessions, severity per repossession, and
recoveries. Changes in the allowance for credit losses are primarily driven by changes in historical trends in
credit losses and recoveries, changes in the composition and size of our present portfolio, changes in trends in
historical used vehicle values, and changes in economic conditions. For additional information, refer to the
“Critical Accounting Estimates” section below.
• Lease Residual – Lease Residual is reflected within Depreciation on vehicles subject to operating leases on the
income statement.
Lease residual measures changes to residual performance at prior period exchange rates. For analysis
purposes, management splits residual performance primarily into residual gains and losses, and the change in
accumulated supplemental depreciation.
Residual gain and loss changes are primarily driven by the number of vehicles returned to us and sold, and the
difference between the auction value and the depreciated value (which includes both base and accumulated
supplemental depreciation) of the vehicles sold. Changes in accumulated supplemental depreciation are primarily
driven by changes in our estimate of the expected auction value at the end of the lease term, and changes in our
estimate of the number of vehicles that will be returned to us and sold. For additional information, refer to the
“Critical Accounting Estimates” section below.
• Exchange – Reflects changes in pre-tax results driven by the effects of converting functional currency income to
U.S. dollars and is reflected in all lines on the income statement.
• Other – Primarily includes Operating expenses, Other revenue, and Insurance expenses on the income statement at
prior period exchange rates.
Changes in operating expenses are primarily driven by salaried personnel costs, facilities costs, and costs
associated with the origination and servicing of customer contracts.
In general, other revenue changes are primarily driven by changes in earnings related to market valuation
adjustments to derivatives (primarily related to movements in interest rates), which are included in unallocated
risk management, and other miscellaneous items.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
22
Results of Operations – 2016
The following chart shows our key metrics:
Our year-end 2016 receivables were higher than a year ago, in line with expectations. While full year pre-tax profit
was lower, it remained solid at $1,879 million.
Our portfolio performance remained robust, despite higher LTRs.
Our origination, servicing and collection practices remained disciplined and consistent.
Our net income was $1.4 billion in 2016, about the same as 2015.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
23
The following chart shows the decrease in pre-tax profit by causal factor:
Ford Credit’s lower full year pre-tax profit is primarily explained by unfavorable lease residual performance and credit
losses. Favorable volume and mix, driven by growth in consumer and non-consumer finance receivables globally and
operating leases in North America, was a partial offset.
Lease residual performance primarily reflects higher depreciation in North America as we expect lower auction values
in the future.
Credit loss performance primarily reflects higher charge-offs in North America.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
24
Results of operations by business segment and unallocated risk management for the years ended December 31 are
shown below (in millions). For additional information, see Note 17 of our Notes to the Financial Statements.
2015 2016
2016
Over/(Under)
2015
Income before income taxes
North America Segment $ 1,629 $ 1,408 $ (221)
International Segment 458 402 (56)
Unallocated risk management (1) 69 70
Income before income taxes $ 2,086 $ 1,879 $ (207)
North America Segment
The North America Segment’s lower full year pre-tax profit for 2016 is primarily explained by unfavorable lease
residual performance and higher credit losses, partially offset by favorable volume and mix. The unfavorable lease
residual performance reflects higher depreciation related to expected lower auction values in the lease portfolio and credit
loss performance reflects higher charge-offs. The favorable volume and mix was driven by growth in all products.
International Segment
The International Segment’s lower full year pre-tax profit for 2016 is primarily explained by the adverse effect of the
stronger U.S. dollar and lower financing margin driven by lower portfolio yield in Europe. The favorable volume and mix,
driven by growth in consumer and non-consumer finance receivables, was a partial offset.
Unallocated Risk Management
The improvement in unallocated risk management primarily reflects favorable performance in market valuation
adjustments to derivatives. For additional information, see Notes 9 and 17 of our Notes to the Financial Statements.
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
25
Results of Operations – 2015
The following chart shows our key metrics:
Our receivables were higher than year-end 2014.
On a pre-tax basis we earned $2.1 billion in 2015, up $232 million from 2014. Our net income was $1.4 billion in
2015, compared with $1.7 billion in 2014. The decrease in net income reflects the nonrecurrence of favorable tax items
recorded in 2014. For additional information, see Note 12 of our Notes to the Financial Statements. In 2015, we paid
distributions of $250 million.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
26
The following chart shows the increase in pre-tax profit by causal factor:
Pre-tax profit improved compared with 2014. The improvement is more than explained by favorable volume and mix,
driven by growth in all products globally.
Higher credit losses and the adverse effect of the stronger U.S. dollar were partial offsets. The higher credit losses,
primarily in North America, reflect reserve increases in 2015 compared with reserve releases in 2014. Charge-offs were
also higher.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
27
Results of our operations by business segment and unallocated risk management for the years ended December 31
are shown below (in millions). For additional information, see Note 17 of our Notes to the Financial Statements.
2014 2015
2015
Over/(Under)
2014
Income before income taxes
North America Segment $ 1,399 $ 1,629 $ 230
International Segment 461 458 (3)
Unallocated risk management (6) (1) 5
Income before income taxes $ 1,854 $ 2,086 $ 232
North America Segment
The North America Segment’s higher full year pre-tax profit is more than explained by favorable volume and mix,
driven by growth in all products. A partial offset was higher credit losses, reflecting higher charge-offs and reserve
increases in 2015 compared with reserve releases in 2014.
International Segment
The International Segment’s full year pre-tax profit is largely unchanged. Favorable volume and mix, driven by growth
in all products, was offset by the adverse effect of the stronger U.S. dollar, lower financing margin, and higher credit
losses, reflecting reserve increases in 2015 compared with reserve releases in 2014.
Unallocated Risk Management
Unallocated risk management is largely unchanged. For additional information, see Notes 9 and 17 of our Notes to
the Financial Statements.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
28
Financing Shares and Contract Placement Volume
Our focus is on supporting Ford and Lincoln dealers and customers. This includes going to market with Ford and our
dealers to support vehicle sales with financing products and marketing programs. Ford’s marketing programs may
encourage or require Ford Credit financing and influence the financing choices customers make. As a result, our
financing share, volume, and contract characteristics vary from period to period as Ford’s marketing programs change.
The following chart shows our North America Segment’s retail installment and lease share of new Ford- and Lincolnbrand
vehicle retail sales and wholesale financing share of new Ford- and Lincoln-brand vehicles acquired by dealers.
Also shown is our North America Segment’s consumer financing contract placement volume for new and used vehicles.
All data is for the years ended December 31:
The decrease in 2016 full year total contract volume is more than explained by lower retail installment and lease
financing share in the United States.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
29
The following chart shows our International Segment’s retail installment and lease share of new Ford-brand vehicles
sold and wholesale financing share of new Ford-brand vehicles acquired by dealers. Also shown is our International
Segment’s consumer financing contract placement volume for new and used vehicles. All data is for the years ended
December 31:
Total contract volume in 2016 increased from a year ago, primarily reflecting growth in China.
Our operations in China achieved record 2016 full year contract volume, as more consumers choose to finance the
purchase of vehicles. The increased China volume was a result of higher retail installment financing share driven by
Ford’s marketing programs.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
30
Financial Condition
Finance Receivables and Operating Leases
Our receivables, including finance receivables and operating leases, were as follows:
__________
* At December 31, 2014, 2015, and 2016, includes consumer receivables before allowance for credit losses of $24.4 billion, $27.6 billion, and
$32.5 billion, respectively, and non-consumer receivables before allowance for credit losses of $21.8 billion, $26.1 billion, and $26.0 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 December 31, 2014, 2015, 2016, includes net investment in operating leases before allowance for credit losses of $9.6
billion, $13.3 billion, and $11.8 billion, respectively, that have been included in securitization transactions but continue to be reported in our
consolidated financial statements. The receivables and net investment in operating leases are available only for payment of the debt issued by,
and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other
obligations or the claims of Ford Credit’s other creditors. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt
issued by, and other obligations of, the securitization entities that are parties to those securitization transactions. For additional information on our
securitization transactions, refer to the “Securitization Transactions” and “On-Balance Sheet Arrangements” sections below and Note 7 of our Notes
to the Financial Statements.
** Dealer financing primarily includes wholesale loans to dealers to finance the purchase of vehicle inventory.
Receivables at December 31, 2016 increased from year-end 2015, driven by growth in consumer finance receivables
globally and operating leases in North America.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
31
Credit Risk
Credit risk is the possibility of loss from a customer’s or dealer’s failure to make payments according to contract
terms. Credit losses are a normal part of a lending business, and credit risk has a significant impact on our business. We
actively manage the credit risk of our consumer (retail financing and operating lease) and non-consumer (dealer
financing) receivables to balance our level of risk and return using our consistent underwriting standards, effective
proprietary scoring system (discussed below), and world-class servicing. The allowance for credit losses (also referred to
as the credit loss reserve) represents our estimate of the probable credit losses inherent in our finance receivables and
operating leases as of the balance sheet date. The allowance for credit losses is estimated using a combination of
models and management judgment, and is based on such factors as historical loss performance, portfolio quality, and
receivable levels. The adequacy of our allowance for credit losses is assessed quarterly and the assumptions and
models used in establishing the allowance are evaluated regularly. A description of our allowance setting process is
provided in the “Critical Accounting Estimates – Allowance for Credit Losses” section below.
Most of our charge-offs are related to retail finance and operating lease contracts. Charge-offs are affected by 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 dealer financing, but default rates for
these receivables historically have been substantially lower than those for retail finance and operating lease contracts.
For additional information on severity, refer to the “Critical Accounting Estimates – Allowance for Credit Losses”
section below.
In purchasing retail finance and operating lease contracts, we use a proprietary scoring system that measures credit
quality using information in the credit application, proposed contract terms, credit bureau data, and other information we
obtain. After a proprietary risk score is generated, we decide whether to purchase a contract using a decision process
based on a judgmental evaluation of the applicant, the credit application, the proposed contract terms, credit bureau
information (e.g., FICO score), proprietary risk score, and other information. Our evaluation emphasizes the applicant’s
ability to pay and creditworthiness focusing on payment, affordability, applicant credit history, and stability as key
considerations. While FICO is a part of our scoring system, our models enable us to more effectively determine the
probability that a customer will pay than using credit scores alone. When we originate business, our models project
expected losses and we price accordingly. We ensure the business fits our risk appetite. For additional information on
the quality of our receivables, see Note 4 of our Notes to the Financial Statements.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
32
U.S. Origination Metrics
We support customers across the credit spectrum. Our higher risk business, as classified at contract inception,
consistently represents 5%-6% of our portfolio and has been stable for over 10 years.
The following charts show annual trends for FICO and higher risk mix and retail contract terms:
The average placement FICO score remained consistent.
Our average retail term remains largely unchanged from last year, and retail contracts of 73 months and longer
continued to be a relatively small part of our business. We remain focused on managing the trade cycle – building
customer relationships and loyalty while offering financing products and terms customers want.
Our origination and risk management processes deliver robust portfolio performance.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
33
U.S. Credit Losses
The following charts show the primary drivers of credit losses in the U.S. retail and lease business, which comprised
73% of our worldwide consumer portfolio at December 31, 2016. Loss-to-Receivables (“LTR”) ratios are charge-offs
divided by average managed receivables.
Credit losses have been at historically low levels for quite some time, and we continue to see credit losses increase
toward more normal levels.
Delinquencies and the repossession ratio were up from last year.
Severities have increased over the last number of years. These increases include factors such as higher average
amount financed, longer-term financing, shorter average time to repossession, lower auction values, and higher principal
outstanding at repossession.
Lower auction values accounted for about half of the severity increase in 2016 from the prior year, with the other half
explained by the other factors.
Charge-offs and the LTR ratio were up year-over-year, primarily reflecting higher defaults and higher severities. The
higher defaults reflect an increased default frequency as well as growth in receivables.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
34
Worldwide Credit Losses
The following charts show annual trends of charge-offs (credit losses, net of recoveries), LTR ratios, credit loss
reserve, and our credit loss reserve as a percentage of end-of-period (“EOP”) managed receivables:
Our worldwide credit loss metrics remain strong. The worldwide LTR ratio is higher than last year, primarily reflecting
the U.S. retail and lease business as covered above.
Our credit loss reserve is based on such factors as historical loss performance, portfolio quality and receivable levels.
The credit loss reserve was higher at December 31, 2016, compared to December 31, 2015, reflecting credit loss
performance trends and growth in retail receivables.
The reserve as a percent of managed receivables was up from 2015.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
35
Residual Risk
Leasing is an important product that many customers want and value, and lease customers also are more likely to buy
or lease another Ford or Lincoln vehicle. We manage our lease share with an enterprise view to support sales, protect
residual values, and manage the trade cycle. Ford Credit and Ford work together under a leasing strategy that considers
share, term, model mix, geography, and other factors.
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, industrywide used vehicle prices, marketing
incentive plans, and vehicle quality data. For operating leases, changes in expected residual values impact the
depreciation expense, which is recognized on a straight-line basis over the life of the lease.
For additional information on our residual risk on operating leases, refer to the “Critical Accounting Estimates –
Accumulated Depreciation on Vehicles Subject to Operating Leases” below and Note 5 “Net Investment in Operating
Leases.”
North America Retail Operating Lease Experience
The North America Segment accounted for 99% of Ford Credit’s total operating leases at December 31, 2016. The
following table shows operating lease placement, termination, and return volumes for this segment for the years ended
December 31 (in thousands, except for percentages):
2014 2015 2016
Placements (a) 408 461 445
Terminations (b) 261 273 358
Returns (c) 193 187 255
Memo:
Return rates 74% 68% 71%
__________
(a) Placement volume measures the number of leases we purchase in a given period.
(b) Termination volume measures the number of vehicles for which the lease has ended in a given period.
(c) Return volume reflects the number of vehicles returned to us by customers at lease end.
In 2016, placement volume was down about 16,000 units compared with 2015, primarily reflecting changes in Ford’s
marketing programs. Termination volume increased by about 85,000 units compared with 2015, reflecting higher lease
placements relative to prior years. Return volume increased about 68,000 units compared with 2015, reflecting higher
termination volumes and an increased return rate.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
36
U.S. Ford- and Lincoln-Brand Operating Lease Experience
The following charts show lease placement volume and lease share of Ford- and Lincoln-brand retail sales for
vehicles in the respective periods. The U.S. operating lease portfolio accounted for 89% of our total net investment in
operating leases at December 31, 2016.
Our 2016 full year lease placement volume was down slightly compared with 2015. Industry leasing continued to
grow in 2016; however, our 2016 full year lease share was flat compared to last year and remains below the industry,
reflecting the parameters of our leasing strategy.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
37
The following charts show lease return volumes and auction values at incurred vehicle mix for vehicles returned in the
respective periods.
Our 2016 lease return volume was higher than 2015, reflecting higher lease placements in recent years and an
increased return rate. The higher mix of 36-month leases returning in 2016 reflects the shift toward longer term leasing
made in 2013.
In 2016, our off-lease auction values were lower than 2015, primarily reflecting higher return volume and lower auction
values on smaller vehicles.
Over the last several years, we have seen industry lease share grow with rising industry volumes. As a result, the
supply of off-lease vehicles is higher and will continue to grow for the next several years. We expect the increased supply
of used vehicles to continue to put downward pressure on auction values.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
38
Credit Ratings
Our short-term and long-term debt is rated by four credit rating agencies designated as nationally recognized
statistical rating organizations (“NRSROs”) by the U.S. Securities and Exchange Commission:
• DBRS Limited (“DBRS”);
• Fitch, Inc. (“Fitch”);
• Moody’s Investors Service, Inc. (“Moody’s”); and
• Standard & Poor’s Ratings Services, a division of McGraw Hill Financial (“S&P”).
In several markets, locally recognized rating agencies also rate us. A credit rating reflects an assessment by the
rating agency of the credit risk associated with a corporate entity or particular securities issued by that entity. Rating
agencies’ ratings of us are based on information provided by us and other sources. Credit ratings assigned to us from
all of the NRSROs are closely associated with their opinions on Ford. Credit ratings are not recommendations to buy,
sell, or hold securities and are subject to revision or withdrawal at any time by the assigning rating agency. Each rating
agency may have different criteria for evaluating company risk and, therefore, ratings should be evaluated
independently for each rating agency.
In the first half of 2016, Ford Credit received rating upgrades from each of these NRSROs. The following chart
summarizes certain of the credit ratings and outlook presently assigned by these four NRSROs:
NRSRO RATINGS
Ford Credit NRSROs
Long-Term
Senior
Unsecured
Short -Term
Unsecured
Outlook/
Trend
Minimum
Long-Term
Investment
Grade Rating
DBRS BBB R-2M Stable BBB (low)
Fitch BBB F2 Stable BBBMoody’s
Baa2 P-2 Stable Baa3
S&P BBB A-2 Stable BBB-
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
39
Funding and Liquidity
Our primary funding and liquidity objective is to maintain a strong investment grade balance sheet with ample liquidity
to support our financing activities and growth under a variety of market conditions, including short-term and long-term
market disruptions.
Our funding strategy remains focused on diversification, and we plan to continue accessing a variety of markets,
channels, and investors.
Our liquidity profile continues to be diverse, robust, and focused on maintaining liquidity levels that meet our business
and funding requirements. We annually stress test our balance sheet and liquidity to ensure that we continue to meet our
financial obligations through economic cycles.
Funding Sources
Our funding sources include primarily unsecured debt and securitization transactions (including other structured
financings). We issue both short-term and long-term debt that is held by both institutional and retail investors, with longterm
debt having an original maturity of more than 12 months.
We sponsor a number of securitization programs that can be structured to provide both short-term and long-term
funding through institutional investors in the United States and international capital markets. For additional information on
our securitization transactions, refer to the “Securitization Transactions” section below.
We obtain short-term unsecured funding from the sale of floating rate demand notes under our Ford Interest
Advantage program and by issuing unsecured commercial paper in the United States and other international markets. At
December 31, 2016, the principal amount outstanding of Ford Interest Advantage notes, which may be redeemed at any
time at the option of the holders thereof without restriction, was $6.0 billion. At December 31, 2016, the principal amount
outstanding of our unsecured commercial paper was $4.5 billion, which primarily represents issuance under our
commercial paper program in the United States.
We maintain multiple sources of readily available liquidity to fund the payment of our unsecured short-term
debt obligations.
Cost of Funding Sources
The cost of securitization transactions and unsecured debt funding is based on a margin or spread over a benchmark
interest rate. Spreads are typically measured in basis points. Our asset-backed funding and unsecured long-term debt
costs are based on spreads over U.S. Treasury securities of similar maturities, a comparable London Interbank Offered
Rate (“LIBOR”), or other comparable benchmark rates. The funding costs of our floating rate demand notes change
depending on market conditions.
During 2016, the weighted average spread of the triple-A rated notes offered in our U.S. public retail securitization
transactions ranged from 17 to 45 basis points over the relevant benchmark rates and our U.S. institutional unsecured
long-term debt transaction spreads ranged from 83 to 224 basis points over the relevant benchmark rates.
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
40
Funding Portfolio
The following chart shows the trends in funding for our managed receivables:
Managed receivables of $137 billion at the end of 2016 were funded primarily with term debt and term asset-backed
securities. Securitized funding as a percent of managed receivables was 37%.
We expect the mix of securitized funding to trend lower over time. However, the calendarization of the funding plan
may result in quarterly fluctuations of the securitized funding percentage.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
41
Public Term Funding Plan
The following chart shows our issuances for 2014, 2015, and 2016, and our planned issuances for 2017, excluding
short-term funding programs:
In 2016, we completed $28 billion of public term funding.
For 2017, we project full-year public term funding in the range of $24 billion to $30 billion. Through February 8, 2017,
we have completed over $5 billion of public term issuances.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
42
Liquidity Sources
We define gross liquidity as cash, cash equivalents, and marketable securities (excluding amounts related to
insurance activities) and committed capacity (which includes our credit and asset-backed facilities and bank lines), 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). Net liquidity available for use is defined as gross liquidity less
certain adjustments for asset-backed capacity in excess of eligible receivables and cash related to the Ford Credit
Revolving Extended Variable-utilization program (“FordREV”), which can be accessed through future sales of receivables.
While not included in available liquidity, these adjustments represent additional funding sources for future originations.
The following chart shows our liquidity sources and utilization:
Our liquidity available for use will fluctuate quarterly based on factors including near-term debt maturities, receivable
growth, and timing of funding transactions. We target liquidity of at least $25 billion. At December 31, 2016, our liquidity
available for use was $27 billion, $3.5 billion higher than year-end 2015.
Our sources of liquidity include cash, committed asset-backed facilities, unsecured credit facilities, and the corporate
credit facility allocation.
Cash, Cash Equivalents, and Marketable Securities. At December 31, 2016, our cash, cash equivalents, and
marketable securities (excluding amounts related to insurance activities) totaled $10.8 billion, compared with $11.2 billion
at year-end 2015. 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 held primarily in highly liquid investments, which provide
liquidity for our anticipated and unanticipated cash needs and give us flexibility in the use of our other funding programs.
Our cash, cash equivalents, and marketable securities (excluding amounts related to insurance activities) primarily include
U.S. Department of Treasury obligations, federal agency securities, bank time deposits with investment-grade institutions,
commercial paper rated A-1/P-1 or higher, debt obligations of a select group of non-U.S. governments, non-U.S.
governmental agencies, supranational institutions, non-U.S. central banks, and money market funds that carry the highest
possible ratings.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
43
The average maturity of these investments ranges from approximately three to six months 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 included amounts to be used only to support our securitization transactions of
$3.4 billion and $4.3 billion at December 31, 2016 and 2015, respectively.
Committed Capacity. At December 31, 2016, our committed capacity totaled $40.1 billion, compared with $38.5 billion
at December 31, 2015. Our committed capacity is primarily comprised of committed ABS facilities from bank-sponsored
commercial paper conduits and other financial institutions, unsecured credit facilities with financial institutions, and
allocated commitments under the Ford corporate credit facility.
Committed Asset-Backed Facilities. We and our subsidiaries have entered into agreements with a number of banksponsored
asset-backed commercial paper conduits and other financial institutions. Such counterparties are contractually
committed, at our option, to purchase from us eligible retail receivables or to purchase or make advances under assetbacked
securities backed by retail or wholesale finance receivables or operating leases for proceeds of up to $34.6 billion
($18.2 billion of retail financing, $6.1 billion of wholesale financing, and $10.3 billion of operating leases) at
December 31, 2016. These committed facilities have varying maturity dates, with $17.5 billion having maturities within the
next twelve months and the remaining balance having maturities through 2018. We plan capacity renewals to protect our
global funding needs, optimize capacity utilization, and maintain sufficient liquidity.
Our ability to obtain funding under these facilities is subject to having a sufficient amount of eligible assets as well as
our ability to obtain interest rate hedging arrangements for certain facilities. At December 31, 2016, $19.9 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.
FCE Bank plc (“FCE”) has pre-positioned retail receivables with the Bank of England which supports access to the
Discount Window Facility. Pre-positioned assets are neither pledged to nor held as collateral by the Bank of England
unless the Discount Window Facility is accessed. FCE’s eligibility to access the Discount Window Facility is not reflected
in the Liquidity Sources chart above.
Unsecured Credit Facilities. At December 31, 2016, we and our majority-owned subsidiaries had $5.5 billion of
contractually committed unsecured credit facilities with financial institutions, including the FCE Credit Agreement (as
defined below) and the allocation under Ford’s corporate credit facility. At December 31, 2016, $4.8 billion was available
for use.
FCE’s £990 million (equivalent to $1.2 billion at December 31, 2016) syndicated credit facility (the “FCE Credit
Agreement”) matures in 2019. At December 31, 2016, £690 million (equivalent to $850 million) was 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 Ford Credit 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).
Lenders under the Ford corporate credit facility have commitments totaling $13.4 billion, with 75% of the commitments
maturing on April 30, 2021 and 25% of the commitments maturing on April 30, 2019. Ford has allocated $3.0 billion of
commitments, including commitments under a Chinese renminbi sub-facility, to us on an irrevocable and exclusive basis
to support our growth and liquidity. At December 31, 2016, all $3.0 billion was available for use.
Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
44
Funding and Liquidity Risks
Our funding plan is subject to risks and uncertainties, many of which are beyond our control, including disruption in
the capital markets that could impact both unsecured debt and asset-backed securities issuance and the effects of
regulatory changes on the financial markets.
Despite our diverse sources of funding and liquidity, our ability to maintain liquidity may be affected by the following
factors (not necessarily listed in order of importance or probability of occurrence):
• Prolonged disruption of the debt and securitization markets;
• Global capital market volatility;
• Market capacity for Ford- and Ford Credit-sponsored investments;
• General demand for the type of securities we offer;
• Our ability to continue funding through asset-backed financing structures;
• Performance of the underlying assets within our asset-backed financing structures;
• Inability to obtain hedging instruments;
• Accounting and regulatory changes;
• Our ability to maintain credit facilities and committed asset-backed facilities; and
• Credit ratings assigned to us.
Stress Tests
We annually conduct stress testing on our funding and liquidity sources to ensure we can continue to meet our
financial obligations and support the sale of Ford vehicles during firm-specific and market-wide stress events. Stress tests
are intended to quantify the potential impact of various adverse scenarios on the balance sheet and liquidity. These
scenarios include assumptions on access to unsecured and secured debt markets, runoff of short-term funding, and ability
to renew expiring liquidity commitments and are measured over various time periods, including 30 days, 90 days, and
longer term. We target a sufficient amount and composition of liquidity to withstand such stresses. Our stress test does
not assume any additional funding, liquidity, or capital support from Ford. We routinely develop contingency funding plans
as part of our liquidity stress testing.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
45
Balance Sheet Liquidity Profile
We define our balance sheet liquidity profile as the cumulative maturities, including the impact of expected
prepayments, of our finance receivables, investment in operating leases, and cash, less the cumulative debt maturities
over upcoming annual periods. Our balance sheet is inherently liquid because of the short-term nature of our finance
receivables, investment in operating leases, and cash. We ensure our cumulative debt maturities have a longer tenor
than our cumulative asset maturities. This positive maturity profile is intended to provide additional liquidity after all assets
have been funded and is in addition to our liquidity stress test.
The following chart shows our cumulative maturities for the periods presented:
Maturities of investment in operating leases consist primarily of the portion of rental payments attributable to
depreciation over the remaining life of the lease and the expected residual value at lease termination. For additional
information on maturities of finance receivables and debt, see Notes 4 and 11 of our Notes to the Financial Statements.
Maturities of finance receivables and investment in operating leases in the chart above include expected prepayments for
our retail installment sale contracts and investment in operating leases. The 2017 finance receivables maturities in the
chart above also include all of the wholesale receivables maturities that are otherwise shown in Note 4 as extending
beyond 2017. The chart above also reflects the following adjustments to debt maturities in Note 11 to match all of the
asset-backed debt maturities with the underlying asset maturities:
• The 2017 maturities include all of the wholesale securitization transactions, even if the maturities extend beyond
2017; and
• Retail securitization transactions under certain committed asset-backed facilities are assumed to amortize
immediately rather than amortizing after the expiration of the commitment period.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
46
Securitization Transactions
Overview
We securitize finance receivables and net investment in operating leases through a variety of programs using
amortizing, variable funding, and revolving structures. We also sell finance receivables in structured financing
transactions. Due to the similarities between securitization and structured financing, we refer to structured financings as
securitization transactions. Our securitization programs are targeted to institutional investors in both public and private
transactions. We completed our first securitization transaction in 1988, and participate in a number of securitization
markets including the United States, Canada, several European countries, Mexico, and China.
Our securitization transactions involve sales to consolidated entities or we maintain control over the assets. As a
result, the securitized assets and related debt remain on our balance sheet and affect our financial condition, operating
results, and liquidity. New programs and new transaction structures typically require substantial development time before
coming to market.
Securitization provides us with a lower cost source of funding compared with unsecured debt and it diversifies our
funding among different markets and investors. In the United States, we are able to obtain funding within two days for our
unutilized capacity in some of our committed asset-backed facilities.
Use of Special Purpose Entities
In a securitization transaction, the securitized assets are generally held by a bankruptcy-remote special purpose entity
(“SPE”) in order to isolate the securitized assets from the claims of our creditors and ensure that the cash flows on the
securitized assets are available for the benefit of securitization investors. Payments to securitization investors are made
from cash flows on the securitized assets and any enhancements in the SPE, and not by Ford Credit and are not based
on our creditworthiness. Senior asset-backed securities issued by the SPEs generally receive the highest credit ratings
from the rating agencies that rate them.
Securitization SPEs have limited purposes and generally are only permitted to purchase the securitized assets, issue
asset-backed securities, and make payments on the securities. Some SPEs, such as certain trusts that issue securities
backed by retail installment sale contracts, only issue a single series of securities and are dissolved when those securities
have been paid in full. Other SPEs, such as the trusts that issue securities backed by wholesale receivables, issue
multiple series of securities from time to time and are not dissolved until the last series of securities is paid in full.
Our use of SPEs in our securitization transactions is consistent with conventional practices in the consumer
asset-backed securitization industry. We sponsor the SPEs used in all of our securitization programs with the exception of
bank-sponsored conduits. None of our officers, directors, or employees holds any equity interests in our SPEs or receives
any direct or indirect compensation from the SPEs. These SPEs do not own our Shares or shares of any of our affiliates.
Selection of Assets, Enhancements, and Retained Interests
In order to be eligible for inclusion in a securitization transaction, each asset must satisfy certain eligibility criteria
designed for the specific transaction. For example, for securitization transactions of retail installment sale contracts, the
selection criteria may be based on factors such as location of the obligor, contract term, payment schedule, interest rate,
financing program, the type of financed vehicle, and whether the contracts are active and in good standing (e.g., when the
obligor is not more than 30-days delinquent or bankrupt). It is our preferred practice to satisfy the applicable eligibility
criteria by randomly selecting the assets to be included in a particular securitization from our entire portfolio of assets.
However, there may be circumstances in which regulatory or rating agency requirements compel us to intentionally select
certain assets.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
47
We provide various forms of credit and payment enhancements to increase the likelihood of receipt by securitization
investors of the full amount of interest and principal due on their asset-backed securities. Credit enhancements include
(i) over-collateralization (when the principal amount of the securitized assets exceeds the principal amount of related
asset-backed securities), (ii) segregated cash reserve funds, (iii) subordinated securities, (iv) excess spread (when
interest collections on the securitized assets exceed the related fees and expenses, including interest payments on the
related asset-backed securities), and (v) accelerated payments where all excess spread and all principal collections from
the receivables are used to repay the asset-backed securities until such securities are repaid in full or a target overcollateralization
amount is attained. Payment enhancements include interest rate swaps and other hedging
arrangements, liquidity facilities, and certain cash deposits.
We retain interests in our securitization transactions, including subordinated securities issued by the SPE, rights to
cash held for the benefit of the securitization investors, and residual interests. Residual interests represent the right to
receive collections on the securitized assets in excess of amounts needed to pay securitization investors and to pay other
transaction participants and expenses. We retain credit risk in securitization transactions because our retained interests
include the most subordinated interests in the securitized assets and are structured to absorb expected credit losses on
the securitized assets before any losses would be experienced by investors. Based on past experience, we expect that
any losses in the pool of securitized assets would likely be limited to our retained interests. Our retention of credit risk is
legally required in most jurisdictions to be at least 5% of the credit risk of the securitized assets and is typically required to
be retained for at least two years.
Our Continuing Obligations
We are engaged as servicer to service the securitized assets and securitization transactions. Our servicing duties
include collecting payments on the securitized assets, preparing monthly investor reports on the performance of the
securitized assets and the securitization transaction, and facilitating payments to securitization investors. While servicing
securitized assets, we apply the same servicing policies and procedures that we apply to our owned assets and maintain
our normal relationship with our financing customers.
We generally have no obligation to repurchase or replace any securitized asset that subsequently becomes
delinquent in payment or otherwise is in default. However, as the seller and servicer of the securitized assets and as the
administrator of the securitization SPE, we are obligated to provide certain kinds of support to our securitization
transactions, which are customary in the securitization industry. These obligations include performing administrative
duties for the SPE and some transaction parties, indemnifications, repurchase obligations on assets that do not meet
representations or warranties on eligibility criteria or that have been materially modified, the mandatory sale of additional
assets in some revolving transactions, the payment or reimbursement of transaction party expenses and, in some cases,
servicer advances of certain amounts. Securitization investors have no recourse to us or our other assets and have no
right to require us to repurchase the investments. We generally have no obligation to provide liquidity or contribute cash
or additional assets to our SPEs either due to the performance of the securitized assets or the credit rating of our shortterm
or long-term debt. We do not guarantee any asset-backed securities. We may be required to support the
performance of certain securitization transactions, however, by increasing cash reserves.
For certain public offerings of asset-backed securities, we have obligations to report certain information, including
asset-level data on the securitized assets, ensure the engagement of an independent asset representations reviewer,
cooperate and provide access to information necessary for an asset representations review, and participate in dispute
resolution proceedings for unresolved asset repurchase requests.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
48
Structural Features Under Certain Securitization Programs
The following securitization programs contain structural features that could prevent us from using these sources of
funding in certain circumstances:
• Retail Committed Syndicated Facility. Since October 2013, we have maintained a syndicated liquidity facility
requiring the committed lenders to purchase rated, floating-rate asset-backed securities backed by retail
installment sale contracts originated in the United States. If the over-collateralization and segregated cash
reserve fund balance for any outstanding asset-backed security under this facility decreases below a specified
level, each committed lender has the option to terminate its commitment.
• Revolving Retail Program. Asset-backed securities under the FordREV program may be supported by a
combination of a revolving pool of U.S. retail receivables and cash collateral. Cash generated by the receivables
during the revolving period in excess of what is needed to pay certain expenses of the trust and interest on the
notes may be used to purchase additional receivables provided that certain tests are met after the purchase. The
revolving period ends upon the occurrence of certain events that include if credit losses or delinquencies on the
pool of assets supporting the securities exceed specified levels, if certain segregated account balances are below
their required levels, and if interest is not paid on the securities.
• Retail Committed Facilities. If credit losses or delinquencies on a pool of assets held by a facility exceeds
specified levels, or if the level of over-collateralization or credit enhancements for that pool decreases below a
specified level, we will not have the right to sell additional pools of assets to that facility.
• Wholesale Program. If the payment rates on wholesale receivables in the securitization trust are lower than
specified levels or if there are significant dealer defaults, we will be unable to obtain additional funding and any
existing funding would begin to amortize.
• Lease Facility Program. If credit losses or delinquencies in our portfolio of retail lease contracts exceed specified
levels, we will be unable to obtain additional funding from the securitization of retail lease contracts through our
committed lease facilities.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
49
On-Balance Sheet Arrangements
Our securitization transactions involve sales to consolidated entities or we maintain control over the assets and,
therefore, the securitized assets and related debt remain on our balance sheet. The securitized assets are available only
for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those
securitization transactions. They are not available to pay our other obligations or the claims of our other creditors. We
hold the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the
securitization entities that are parties to those securitization transactions. This debt is the obligation of our consolidated
securitization entities and not the obligation of Ford Credit or our other subsidiaries. For additional information on our
on-balance sheet arrangements, see Note 7 of our Notes to the Financial Statements.
The following table shows worldwide cash and cash equivalents, receivables, and related debt by segment and
product for our on-balance sheet securitization transactions at December 31 (in billions):
2015 2016
Cash and
Cash
Equivalents
Finance
Receivables
and Net
Investment
in Operating
Leases (a)
Related Debt
(b)
Cash and
Cash
Equivalents
Finance
Receivables
and Net
Investment
in Operating
Leases (a)
Related Debt
(b)
Finance Receivables
North America Segment
Retail financing $ 1.4 $ 22.4 $ 20.7 $ 1.5 $ 26.8 $ 24.1
Wholesale financing 2.0 22.0 13.8 1.0 22.1 12.7
Total North America Segment 3.4 44.4 34.5 2.5 48.9 36.8
International Segment
Retail financing 0.4 5.2 4.3 0.4 5.7 4.7
Wholesale financing — 4.1 2.3 — 3.9 1.5
Total International Segment 0.4 9.3 6.6 0.4 9.6 6.2
Total finance receivables 3.8 53.7 41.1 2.9 58.5 43.0
Net investment in operating leases 0.5 13.3 8.9 0.5 11.8 7.4
Total on-balance sheet arrangements $ 4.3 $ 67.0 $ 50.0 $ 3.4 $ 70.3 $ 50.4
__________
(a) Before allowances for credit losses. Unearned interest supplements and residual support are excluded from securitization transactions.
(b) Includes unamortized discount and debt issuance costs.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
50
Leverage
We use leverage, or the debt-to-equity ratio, to make various business decisions, including evaluating and
establishing pricing for finance receivable and operating lease financing, and assessing our capital structure. We refer to
our shareholder’s interest as equity.
The following chart shows the calculation of our financial statement leverage and managed leverage:
We believe that managed leverage is useful to our investors because it reflects the way we manage our business.
We deduct cash, cash equivalents, and marketable securities (excluding amounts related to insurance activities) because
they generally correspond to excess debt beyond the amount required to support our operations and amounts to support
on-balance sheet securitization transactions. We make derivative accounting adjustments to our assets, debt, and equity
positions to reflect the impact of interest rate instruments we use in connection with our term-debt issuances and
securitization transactions. The derivative accounting adjustments related to these instruments vary over the term of the
underlying debt and securitized funding obligations based on changes in market interest rates. We generally repay our
debt obligations as they mature. As a result, we exclude the impact of these derivative accounting adjustments on both
the numerator and denominator in order to exclude the interim effects of changes in market interest rates. For additional
information on our use of interest rate instruments and other derivatives, refer to Item 7A.
We plan our managed leverage by considering prevailing market conditions and the risk characteristics of our
business. At December 31, 2016, our financial statement leverage was 9.9:1, and managed leverage was 9.2:1. We
target managed leverage in the range of 8:1 to 9:1. Managed leverage is above the targeted range reflecting growth in
receivables and the continued impact of a strong U.S. dollar, but it continues to trend toward our target range. For
information on our planned distributions, refer to the “Outlook” section.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
51
Aggregate Contractual Obligations
We are party to certain contractual obligations involving commitments to make payments to others. Most of these are
debt obligations, which are recorded on our balance sheet and disclosed in our Notes to the Financial Statements.
Long-term debt may have fixed or variable interest rates. For long-term debt with variable rate interest, we estimate the
future interest payments based on projected market interest rates for various floating rate benchmarks received from third
parties. In addition, we may enter into contracts with suppliers for purchases of certain services, including operating lease
commitments. These arrangements may contain minimum levels of service requirements. Our aggregate contractual
obligations at December 31, 2016 are shown below (in millions):
Payments Due by Period
2017 2018 – 2019 2020 – 2021
2022 and
Thereafter Total
Long-term debt (a) $ 31,655 $ 45,363 $ 23,176 $ 10,881 $ 111,075
Interest payments relating to long-term debt 2,487 3,282 1,636 942 8,347
Operating lease 18 19 10 8 55
Purchase obligations 13 9 2 — 24
Total $ 34,173 $ 48,673 $ 24,824 $ 11,831 $ 119,501
__________
(a) Excludes unamortized discounts, unamortized issuance costs, and fair value adjustments.
Liabilities recognized for unrecognized tax benefits of $80 million are excluded from the table above. Due to the high
degree of uncertainty regarding the timing of future cash flows associated with income tax liabilities, we are unable to
make a reasonably reliable estimate of the amount and period of payment. For additional information on income taxes,
see Note 12 of our Notes to the Financial Statements.
For additional information on our long-term debt and operating lease obligations, see Notes 11 and 19, respectively, of
our Notes to the Financial Statements.
Critical Accounting Estimates
We consider an accounting estimate to be critical if 1) the accounting estimate requires us to make assumptions
about matters that were highly uncertain at the time the accounting estimate was made; and 2) changes in the estimate
that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used
in the current period, would have a material impact on our financial condition or results of operations.
The accounting estimates that are most important to our business involve:
• Allowance for credit losses; and
• Accumulated depreciation on vehicles subject to operating leases.
Management has discussed the development and selection of these critical accounting estimates with Ford’s and our
audit committees, and these audit committees have reviewed these estimates and disclosures.
Allowance for Credit Losses
The allowance for credit losses represents our estimate of the probable credit loss inherent in finance receivables and
operating leases as of the balance sheet date. The adequacy of the allowance for credit losses is assessed quarterly and
the assumptions and models used in establishing the allowance are evaluated regularly. Because credit losses can vary
substantially over time, estimating credit losses requires a number of assumptions about matters that are uncertain. For
additional information regarding our allowance for credit losses, see Note 6 of our Notes to the Financial Statements.
Nature of Estimates Required. We estimate the probable credit losses inherent in finance receivables and operating
leases based on several factors.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
52
Consumer Segment. We estimate the allowance for credit losses on consumer receivables and on operating leases
using a combination of measurement models and management judgment. The models consider factors such as historical
trends in credit losses and recoveries (including key metrics such as delinquencies, repossessions, and bankruptcies), the
composition of the present portfolio (including vehicle brand, term, risk evaluation, and new/used vehicles), trends in
historical used vehicle values, and economic conditions. Estimates from these models rely on historical information and
may not fully reflect losses inherent in the present portfolio. Therefore, we may adjust the estimate to reflect management
judgment regarding observable changes in recent economic trends and conditions, portfolio composition, and other
relevant factors.
Assumptions Used. Our allowance for credit losses is based on our assumption regarding:
• Frequency. The number of finance receivables and operating lease contracts that are expected to default over
the loss emergence period, measured as repossessions; repossession ratio reflects the number of finance
receivables and operating lease contracts that we expect will default over a period of time divided by the average
number of contracts outstanding; and
• Loss severity. The expected difference between the amount a customer owes when the finance contract
is charged off and the amount received, net of expenses, from selling the repossessed vehicle.
Collective Allowance for Credit Losses. The collective allowance is evaluated primarily using a collective LTR model
that, based on historical experience, indicates credit losses have been incurred in the portfolio even though the particular
accounts that are uncollectible cannot be specifically identified. The LTR model is based on the most recent years of
history. Each LTR is calculated by dividing credit losses by average finance receivables or average operating leases,
excluding unearned interest supplements and allowance for credit losses. An average LTR is calculated for each product
and multiplied by the end-of-period balances for that given product.
Our largest markets also use a loss projection model to estimate losses inherent in the portfolio. The loss projection
model applies recent monthly performance metrics, stratified by contract type (retail or lease), contract term (e.g.,
60-month), and risk rating to our active portfolio to estimate the losses that have been incurred.
The loss emergence period (“LEP”) is an assumption within our models and represents the average amount of time
between when a loss event first occurs to when it is charged off. This time period starts when the consumer begins to
experience financial difficulty. It is evidenced, typically through delinquency, before eventually resulting in a charge-off.
The LEP is a multiplier in the calculation of the collective consumer allowance for credit losses.
For accounts greater than 120 days past due, the uncollectible portion is charged off, such that the remaining
recorded investment is equal to the estimated fair value of the collateral less costs to sell.
Specific Allowance for Impaired Receivables. Consumer receivables involved in Troubled Debt Restructurings are
specifically assessed for impairment. A specific allowance is estimated based on the present value of the expected future
cash flows of the receivable discounted at the contract’s original effective interest rate or the fair value of any collateral
adjusted for estimated costs to sell.
After establishing the collective and specific allowance for credit losses, if management believes the allowance does
not reflect all losses inherent in the portfolio due to changes in recent economic trends and conditions, or other relevant
factors, an adjustment is made based on management judgment.
Sensitivity Analysis. Changes in the assumptions used to derive frequency and severity would affect the allowance
for credit losses. The effect of the indicated increase/decrease in the assumptions for our U.S. Ford- and Lincoln-brand
retail financing and operating lease portfolio is as follows (in millions, except for percentages):
Assumption Change
Increase /
(Decrease)
Frequency – repossession ratio +/- 0.1 pct. pt. $49 / $(49)
Loss severity per unit +/- 1.0% 5 / (5)
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
53
Non-Consumer Segment. We estimate the allowance for credit losses for non-consumer receivables based on
historical LTR ratios, expected future cash flows, and the fair value of collateral.
Collective Allowance for Credit Losses. We estimate an allowance for non-consumer receivables that are not
specifically identified as impaired using a LTR model for each financing product based on historical experience. This LTR
is an average of the most recent historical experience and is calculated consistent with the consumer receivables LTR
approach. All accounts that are specifically identified as impaired are excluded from the calculation of the non-specific or
collective allowance.
Specific Allowance for Impaired Receivables. Dealer financing is evaluated by segmenting individual loans by the risk
characteristics of the loan (such as the amount of the loan, the nature of the collateral, and the financial status of the
debtor). The loans are analyzed to determine whether individual loans are impaired, and a specific allowance is
estimated based on the present value of the expected future cash flows of the receivable discounted at the loan’s original
effective interest rate or the fair value of the collateral adjusted for estimated costs to sell.
After establishing the collective and specific allowance for credit losses, if management believes the allowance does
not reflect all losses inherent in the portfolio due to changes in recent economic trends and conditions, or other relevant
factors, an adjustment is made based on management judgment.
Changes in our assumptions affect the Provision for credit losses on our income statement and the allowance for
credit losses contained within Finance receivables, net and Net investment in operating leases on our balance sheet.
Accumulated Depreciation on Vehicles Subject to Operating Leases
Accumulated depreciation on vehicles subject to operating leases reduces the value of the leased vehicles in our
operating lease portfolio from their original acquisition value to their expected residual value at the end of the lease term.
For additional information on net investment in operating leases, including the amount of accumulated depreciation, see
Note 5 of our Notes to the Financial Statements.
We monitor residual values each month, and we review the adequacy of our accumulated depreciation on a quarterly
basis. If we believe that the expected residual values for our vehicles have changed, we revise depreciation to ensure
that our net investment in operating leases (equal to our acquisition value of the vehicles less accumulated depreciation)
will be adjusted to reflect our revised estimate of the expected residual value at the end of the lease term. Such
adjustments to depreciation expense would result in a change in the depreciation rates of the vehicles subject to operating
leases and are recorded prospectively on a straight-line basis.
Each lease customer has the option to buy the leased vehicle at the end of the lease or to return the vehicle to the
dealer. For additional information on our residual risk on operating leases, refer to the “Residual Risk” section above.
Nature of Estimates Required. Each operating lease in our portfolio represents a vehicle we own that has been
leased to a customer. At the time we purchase a lease, we establish an expected residual value for the vehicle. We
estimate the expected residual value by evaluating recent auction values, return volumes for our leased vehicles,
industrywide used vehicle prices, marketing incentive plans, and vehicle quality data.
Assumptions Used. Our accumulated depreciation on vehicles subject to operating leases is based on our
assumptions regarding:
• Auction value. Our projection of the market value of the vehicles when sold at the end of the lease; and
• Return volume. Our projection of the number of vehicles that will be returned at lease end.
Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
54
Sensitivity Analysis. For returned vehicles, we face a risk that the amount we obtain from the vehicle sold at auction
will be less than our estimate of the expected residual value for the vehicle. The effect of the indicated increase/decrease
in the assumptions for our U.S. Ford- and Lincoln-brand operating lease portfolio is as follows (in millions, except for
percentages):
Assumption
Percentage
Change
Increase/
(Decrease)
Future auction values +/- 1.0 $(120) / $120
Return volumes +/- 1.0 15 / (15)
The impact of the change in assumptions on future auction values and return volumes would increase or decrease
accumulated supplemental depreciation and depreciation expense over the remaining terms of the operating leases.
Adjustments to the amount of accumulated supplemental depreciation on operating leases would be reflected on our
balance sheet as Net investment in operating leases and on the income statement in Depreciation on vehicles subject to
operating leases.
Accounting Standards Issued But Not Yet Adopted
The Financial Accounting Standards Board (“FASB”) has issued the following standards, which are not expected to
have a material impact (with the exception of standard 2016-02 and 2016-13) to our financial statements or financial
statement disclosures.
Standard Effective Date (a)
2017-03 Accounting Changes and Error Corrections and Investments – Equity Method and Joint Ventures January 1, 2017
2016-17 Consolidation – Interests Held through Related Parties That Are Under Common Control January 1, 2017
2016-09 Stock Compensation – Improvements to Employee Share-Based Payment Accounting January 1, 2017
2016-07 Equity Method and Joint Ventures – Simplifying the Transition to the Equity Method of Accounting January 1, 2017
2016-06 Derivatives and Hedging – Contingent Put and Call Options in Debt Instruments January 1, 2017
2016-05 Derivatives and Hedging – Effect of Derivative Contract Novations on Existing Hedge Accounting
Relationships
January 1, 2017
2017-01 Business Combinations – Clarifying the Definition of a Business January 1, 2018
2016-18 Statement of Cash Flows – Restricted Cash January 1, 2018
2016-16 Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory January 1, 2018
2016-15 Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments January 1, 2018
2016-04 Extinguishments of Liabilities – Recognition of Breakage for Certain Prepaid Stored-Value Products January 1, 2018
2016-01 Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities January 1, 2018
2014-09 Revenue – Revenue from Contracts with Customers January 1, 2018 (b) (c)
2016-02 Leases January 1, 2019 (b)
2017-04 Goodwill and Other – Simplifying the Test for Goodwill Impairment January 1, 2020
2016-13 Credit Losses – Measurement of Credit Losses on Financial Instruments January 1, 2020 (b)
__________
(a) Early adoption for each of the standards, except standard 2016-01, is permitted.
(b) For additional information see Note 2 of our Notes to the Financial Statements.
(c) The FASB has issued the following updates to the Revenue from Contracts with Customers standard: Accounting Standard Update (“ASU”)
2015-14 (Deferral of the Effective Date), ASU 2016-08 (Principal versus Agent Considerations (Reporting Revenue Gross versus Net)), ASU
2016-10 (Identifying Performance Obligations and Licensing), and ASU 2016-12 (Narrow-Scope Improvements and Practical Expedients). We will
adopt the new revenue guidance effective January 1, 2017.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
55
Outlook
For 2017, we continue to expect full year pre-tax profit to be about $1.5 billion, which is lower compared with 2016
due to the impact of increased accumulated depreciation driven by expected lower residual values for our lease portfolio
in North America.
We plan to resume distributions to our parent in 2017, as managed leverage returns to target range.
Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
56
Risk Factors
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, Europe, or China, due to financial crisis,
recession, geopolitical events, or other factors;
• Lower-than-anticipated market acceptance of Ford’s new or existing products or services, or failure to achieve
expected growth;
• Market shift away from sales of larger, more profitable vehicles beyond Ford’s current planning assumption,
particularly in the United States;
• Continued or increased price competition resulting from industry excess capacity, currency fluctuations, or other
factors;
• Fluctuations in foreign currency exchange rates, commodity prices, and interest rates;
• Adverse effects resulting from economic, geopolitical, protectionist trade policies, or other events;
• 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, production constraints or
difficulties, or other factors);
• Single-source supply of components or materials;
• Labor or other constraints on Ford’s ability to maintain competitive cost structure;
• Substantial pension and other postretirement liabilities impairing liquidity or financial condition;
• Worse-than-assumed economic and demographic experience for pension and other postretirement benefit plans
(e.g., discount rates or investment returns);
• Restriction on use of tax attributes from tax law “ownership change;”
• The discovery of defects in vehicles resulting in delays in new model launches, recall campaigns, or increased
warranty costs;
• Increased safety, emissions, fuel economy, or other regulations 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
products, perceived environmental impacts, or otherwise;
• Adverse effects on results from a decrease in or cessation or clawback of government incentives related to
investments;
• Cybersecurity risks to operational systems, security systems, or infrastructure owned by Ford, Ford Credit, or a
third-party vendor or supplier;
• Failure of financial institutions to fulfill commitments under committed credit and liquidity facilities;
• Inability of Ford Credit 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;
• Higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return
volumes for leased vehicles;
• Increased competition from banks, financial institutions, or other third parties seeking to increase their share of
financing Ford vehicles; and
• New or increased credit regulations, consumer or data protection regulations, or other regulations resulting in
higher costs and/or additional financing restrictions.
We cannot be certain that any expectation, forecast, or assumption made in preparing forward-looking statements will
prove accurate, or that any projection 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 statement, whether as a result of new
information, future events, or otherwise. For additional discussion, see “Item 1A. Risk Factors” above.
57
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
Overview
We are exposed to a variety of risks in the normal course of our business. Our financial condition depends on the
extent to which we effectively identify, assess, monitor, and manage these risks. The principal types of risk to our
business include:
• Market risk – the possibility that changes in interest and currency exchange rates will adversely affect our cash
flow and economic value;
• Counterparty risk – the possibility that a counterparty may default on a derivative contract or investment;
• Credit risk – the possibility of loss from a customer’s failure to make payments according to contract terms;
• Residual risk – the possibility that the actual proceeds we receive at lease termination will be lower than our
projections or return volumes will be higher than our projections;
• Liquidity risk – the possibility that we may be unable to meet all of our current and future obligations in a timely
manner; and
• Operating risk – the possibility of: errors relating to transaction processing and systems; actions that could result
in compliance deficiencies with regulatory standards or contractual obligations; and fraud by our employees or
third parties.
We manage each of these types of risk in the context of its contribution to our overall global risk. We make business
decisions on a risk-adjusted basis and price our services consistent with these risks.
Credit, residual, and liquidity risks are discussed in Items 1 and 7. A discussion of market risk (including currency and
interest rate risk), counterparty risk, and operating risk follows.
Market Risk
Given the unpredictability of financial markets, we seek to reduce volatility in our cash flow and economic value from
changes in interest rates and currency exchange rates. We use various financial instruments, commonly referred to as
derivatives, to manage market risks. We do not engage in any trading, market-making, or other speculative activities in
the derivative markets.
Our strategies to manage market risks are approved by our Asset Liability Committee (“ALCO”) and the Ford Global
Risk Management Committee (“GRMC”). The ALCO is co-chaired by our Chief Financial Officer and the Treasurer of
Ford. The GRMC is chaired by the Chief Financial Officer of Ford.
The Ford Treasurer’s Office is responsible for the execution of our market risk management strategies. These
strategies are governed by written policies and procedures. Separation of duties is maintained between the strategy and
approval of derivatives trades, the execution of derivatives trades, and the settlement of cash flows. Regular audits are
conducted to ensure that appropriate controls are in place and that these controls are effective. In addition, the ALCO,
GRMC, Ford’s Audit Committee, and Ford Credit’s Board of Directors review our market risk exposures and use of
derivatives to manage these exposures.
Interest Rate Risk
Nature of Exposure. Generally, our assets and the related debt have different re-pricing periods, and consequently,
respond differently to changes in interest rates.
Our assets consist primarily of fixed-rate retail installment sale and operating lease contracts and floating-rate
wholesale receivables. Fixed-rate retail installment sale and operating lease contracts generally require customers to
make equal monthly payments over the life of the contract. Wholesale receivables are originated to finance new and used
vehicles held in dealers’ inventory and generally require dealers to pay a floating rate.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
(Continued)
58
Debt consists primarily of short-term and long-term unsecured debt and securitization debt. In the case of unsecured
term debt, to support our positive maturity profile, we may borrow at terms longer than the terms of our assets, in most
instances with maturities up to ten years. These debt instruments are principally fixed-rate and require fixed and equal
interest payments over the life of the instrument and a single principal payment at maturity.
Risk Management. Our interest rate risk management objective is to reduce volatility in our cash flows and volatility in
our economic value from changes in interest rates based on an established risk tolerance that may vary by market. We
use economic value sensitivity analysis and re-pricing gap analysis to evaluate potential long-term effects of changes in
interest rates. We then enter into interest rate swaps to convert portions of our floating-rate debt to fixed or our fixed-rate
debt to floating to ensure that our exposure falls within the established tolerances. We also use pre-tax cash flow
sensitivity analysis to monitor the level of near-term cash flow exposure. The pre-tax cash flow sensitivity analysis
measures the changes in expected cash flows associated with our interest-rate-sensitive assets, liabilities, and derivative
financial instruments from hypothetical changes in interest rates over a twelve-month horizon. The ALCO reviews the repricing
mismatch and exposure every month and approves interest rate swaps required to maintain exposure within
approved thresholds prior to execution.
Quantitative Disclosure. To provide a quantitative measure of the sensitivity of our pre-tax cash flow to changes in
interest rates, we use interest rate scenarios that assume a hypothetical, instantaneous increase or decrease of one
percentage point in all interest rates across all maturities (a “parallel shift”), as well as a base case that assumes that all
interest rates remain constant at existing levels. In reality, interest rate changes are rarely instantaneous or parallel and
rates could move more or less than the one percentage point assumed in our analysis. As a result, the actual impact to
pre-tax cash flow could be higher or lower than the results detailed in the table below. These interest rate scenarios are
purely hypothetical and do not represent our view of future interest rate movements.
Under these interest rate scenarios, we expect more assets than debt and liabilities to re-price in the next twelve
months. Other things being equal, this means that during a period of rising interest rates, the interest earned on our
assets will increase more than the interest paid on our debt, thereby initially increasing our pre-tax cash flow. During a
period of falling interest rates, we would expect our pre-tax cash flow to initially decrease. Our pre-tax cash flow
sensitivity to interest rate movement is highlighted in the table below.
Our pre-tax cash flow sensitivity at December 31 was as follows (in millions):
Pre-Tax Cash Flow Sensitivity 2015 2016
One percentage point instantaneous increase in interest rates $ 7 $ 21
One percentage point instantaneous decrease in interest rates (a) (7) (21)
___________
(a) Pre-tax cash flow sensitivity given a one percentage point decrease in interest rates requires an assumption of negative interest rates in markets
where existing interest rates are below one percent.
Additional Model Assumptions. While the sensitivity analysis presented is our best estimate of the impacts of the
specified assumed interest rate scenarios, our actual results could differ from those projected. The model we use to
conduct this analysis is heavily dependent on assumptions. Embedded in the model are assumptions regarding the
reinvestment of maturing asset principal, refinancing of maturing debt, replacement of maturing derivatives, exercise of
options embedded in debt and derivatives, and predicted repayment of retail installment sale and lease contracts ahead of
contractual maturity. Our repayment projections ahead of contractual maturity are based on historical experience. If
interest rates or other factors change, our actual prepayment experience could be different than projected.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk (Continued)
59
Currency Exchange Rate Risk
Our policy is to minimize exposure to changes in currency exchange rates. To meet funding objectives, we borrow in
a variety of currencies, principally U.S. dollars, Canadian dollars, euros, pound sterling, and renminbi. We face exposure
to currency exchange rates if a mismatch exists between the currency of our receivables and the currency of the debt
funding those receivables. When possible, we fund receivables with debt in the same currency, minimizing exposure to
exchange rate movements. When a different currency is used, we may use foreign currency swaps and foreign currency
forwards to convert substantially all of our foreign currency debt obligations to the local country currency of the
receivables. As a result of this policy, we believe our market risk exposure relating to changes in currency exchange rates
at December 31, 2016 is insignificant. For additional information on our derivatives, see Note 9 of our Notes to the
Financial Statements.
Derivative Notional Values. The outstanding notional value of our derivatives at December 31 was as follows
(in billions):
2015 2016
Interest rate derivatives
Pay-fixed, receive-floating, excluding securitization swaps $ 20 $ 23
Pay-floating, receive-fixed, excluding securitization swaps 40 40
Securitization swaps 31 32
Total interest rate derivatives 91 95
Other derivatives
Cross-currency swaps 3 3
Foreign currency forwards 2 2
Total notional value $ 96 $ 100
Derivative Fair Values. The net fair value of Ford Credit’s derivative financial instruments at December 31, 2015 was
an asset of $681 million, compared to an asset of $743 million at December 31, 2016. For additional information
regarding our derivatives, see Note 9 of our Notes to the Financial Statements.
Counterparty Risk
Counterparty risk relates to the loss we could incur if an obligor or counterparty defaulted on an investment or a
derivative contract. We enter into master agreements with counterparties that allow netting of certain exposures in order
to manage this risk. Exposures primarily relate to investments in fixed income instruments and derivative contracts used
for managing interest rate and foreign currency exchange rate risk. We, together with Ford, establish exposure limits for
each counterparty to minimize risk and provide counterparty diversification.
Our approach to managing counterparty risk is forward-looking and proactive, allowing us to take risk mitigation
actions before risks become losses. Exposure limits are established based on our overall risk tolerance and estimated
loss projections, which are calculated from ratings-based historical default probabilities and market-based credit default
swap (“CDS”) spreads. The exposure limits are lower for lower-rated counterparties, counterparties that have relatively
higher CDS spreads, and for longer-dated exposures. Our exposures are monitored on a regular basis and are included
in periodic reports to Ford’s Treasurer and our Chief Financial Officer.
Substantially all of our counterparty exposures are with counterparties that have an investment grade rating.
Investment grade is our guideline for counterparty minimum long-term ratings. For additional information on our
derivatives, see Note 9 of our Notes to the Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)
60
Operating Risk
We operate in many locations and rely on the abilities of our employees and computer systems to process a large
number of transactions. Improper employee actions, improper operation of systems, or unforeseen business interruptions
could result in financial loss, regulatory action and damage to our reputation, and breach of contractual obligations. To
address this risk, we maintain internal control processes that identify transaction authorization requirements, safeguard
assets from misuse or theft, protect the reliability of financial and other data, and minimize the impact of a business
interruption on our customers. We also maintain system controls to maintain the accuracy of information about our
operations. These controls are designed to manage operating risk throughout our operation.
ITEM 8. Financial Statements and Supplementary Data.
Our Consolidated Financial Statements, the accompanying Notes, and the Report of Independent Registered Public
Accounting Firm that are filed as part of this Report are listed under “Item 15. Exhibits and Financial Statement
Schedules” and are set forth beginning on page FC-1 immediately following the signature pages of this Report.
Selected quarterly financial data for 2015 and 2016 are provided in Note 18 of our Notes to the Financial Statements.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
61
ITEM 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. N. Joy Falotico, our Chairman of the Board and Chief Executive
Officer (“CEO”), and Marion B. Harris, our Chief Financial Officer (“CFO”) and Treasurer, have performed an evaluation of
the Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), as of December 31, 2016, and each has concluded that such disclosure
controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed under
the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by SEC rules and
forms, and that such information is accumulated and communicated to the CEO and CFO to allow timely decisions
regarding required disclosures.
Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).
The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or because the degree of compliance with policies or procedures may
deteriorate.
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an
assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016. The assessment
was based on criteria established in the framework Internal Control – Integrated Framework (2013), issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management
concluded that our internal control over financial reporting was effective as of December 31, 2016.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2016, has been
audited by PricewaterhouseCoopers LLP (“PwC”), an independent registered public accounting firm, as stated in its report
which appears herein.
Changes in Internal Control Over Financial Reporting. There were no changes in internal control over financial
reporting during the fourth quarter of 2016 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B. Other Information.
None.
62
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance.
Not required.
ITEM 11. Executive Compensation.
Not required.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Not required.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.
Not required.
ITEM 14. Principal Accounting Fees and Services.
Our principal accounting fees and services for the years ended December 31 were as follows (in millions):
2015 2016
Nature of Services
Audit fees – for audit of the financial statements included in our Annual Report on Form 10-K, reviews of the
financial statements included in our quarterly reports on Form 10-Q, attestation of the effectiveness of the
Company’s internal controls over financial reporting, preparation of statutory audit reports, and providing comfort
letters in connection with our funding transactions $ 11.5 $ 11.2
Audit-related fees – for support of funding transactions, due diligence for mergers, acquisitions and divestitures,
attestation services, internal control reviews, and assistance with interpretation of accounting standards 1.9 2.2
Tax fees – for tax compliance and the preparation of tax returns, tax consultation, planning and implementation
services, assistance in connection with tax audits, and tax advice related to mergers, acquisitions and
divestitures 0.7 1.2
All other fees – for support in business and regulatory reviews and research analysis regarding new strategies — 0.4
Total fees $ 14.1 $ 15.0
Pre-Approval Policies and Procedures
Ford’s audit committee has established pre-approval policies and procedures that govern the engagement of PwC,
and the services provided by PwC to Ford Credit are pre-approved in accordance with Ford’s policies and procedures.
The policies and procedures are detailed as to the particular services and our audit committee is informed of the services
provided to us by PwC, including the audit fee requests for these services that have been submitted to and approved by
Ford’s audit committee. The pre-approval policies and procedures do not include delegation of the Ford or Ford Credit
audit committees’ responsibilities under the Exchange Act to management.
63
PART IV
ITEM 15. Exhibits and Financial Statement Schedules.
(a) 1. Financial Statements
Report of Independent Registered Public Accounting Firm
Ford Motor Credit Company LLC and Subsidiaries
• Consolidated Income Statement for the Years Ended December 31, 2014, 2015, and 2016
• Consolidated Statement of Comprehensive Income for the Years Ended December 31, 2014, 2015, and 2016
• Consolidated Balance Sheet at December 31, 2015 and 2016
• Consolidated Statement of Shareholder’s Interest for the Years Ended December 31, 2014, 2015, and 2016
• Consolidated Statement of Cash Flows for the Years Ended December 31, 2014, 2015, and 2016
• Notes to the Financial Statements
The Report of Independent Registered Public Accounting Firm, Consolidated Financial Statements, and the Notes to
the Financial Statements listed above are filed as part of this Report and are set forth beginning on page FC-1
immediately following the signature pages of this Report.
(a) 2. Consolidated Financial Statement Schedules
Schedules have been omitted because they are not applicable, the information required to be contained in them is
disclosed elsewhere in the Financial Statements, or the amounts involved are not sufficient to require submission.
64
(a) 3. Exhibits
Designation Description Method of Filing
Exhibit 3-A Certificate of Formation of Ford Motor Credit Company
LLC.
Filed as Exhibit 99.3 to Ford Motor Credit Company
LLC Current Report on Form 8-K dated May 1, 2007
and incorporated herein by reference. File No. 1-6368.
Exhibit 3-B Limited Liability Company Agreement of Ford Motor
Credit Company LLC dated as of April 30, 2007.
Filed as Exhibit 99.4 to Ford Motor Credit Company
LLC Current Report on Form 8-K dated May 1, 2007
and incorporated herein by reference. File No. 1-6368.
Exhibit 4-A Form of Indenture dated as of February 1, 1985
between Ford Motor Credit Company and
Manufacturers Hanover Trust Company relating to
Unsecured Debt Securities.
Filed as Exhibit 4-A to Ford Motor Credit Company
Registration Statement No. 2-95568 and incorporated
herein by reference.
Exhibit 4-A-1 Form of First Supplemental Indenture dated as of
April 1, 1986 between Ford Motor Credit Company and
Manufacturers Hanover Trust Company supplementing
the Indenture designated as Exhibit 4-A.
Filed as Exhibit 4-B to Ford Motor Credit Company
Current Report on Form 8-K dated April 29, 1986 and
incorporated herein by reference. File No. 1-6368.
Exhibit 4-A-2 Form of Second Supplemental Indenture dated as of
September 1, 1986 between Ford Motor Credit
Company and Manufacturers Hanover Trust Company
supplementing the Indenture designated as Exhibit 4-A.
Filed as Exhibit 4-B to Ford Motor Credit Company
Current Report on Form 8-K dated August 28, 1986
and incorporated herein by reference. File No. 1-6368.
Exhibit 4-A-3 Form of Third Supplemental Indenture dated as of
March 15, 1987 between Ford Motor Credit Company
and Manufacturers Hanover Trust Company
supplementing the Indenture designated as Exhibit 4-A.
Filed as Exhibit 4-E to Ford Motor Credit Company
Registration Statement No. 33-12928 and incorporated
herein by reference.
Exhibit 4-A-4 Form of Fourth Supplemental Indenture dated as of
April 15, 1988 between Ford Motor Credit Company and
Manufacturers Hanover Trust Company supplementing
the Indenture designated as Exhibit 4-A.
Filed as Exhibit 4-F to Post-Effective Amendment
No. 1 to Ford Motor Credit Company Registration
Statement No. 33-20081 and incorporated herein by
reference.
Exhibit 4-A-5 Form of Fifth Supplemental Indenture dated as of
September 1, 1990 between Ford Motor Credit
Company and Manufacturers Hanover Trust Company
supplementing the Indenture designated as Exhibit 4-A.
Filed as Exhibit 4-G to Ford Motor Credit Company
Registration Statement No. 33-41060 and incorporated
herein by reference.
Exhibit 4-A-6 Form of Sixth Supplemental Indenture dated as of
June 1, 1998 between Ford Motor Credit Company and
The Chase Manhattan Bank supplementing the
Indenture designated as Exhibit 4-A.
Filed as Exhibit 4.1 to Ford Motor Credit Company
Current Report on Form 8-K dated June 15, 1998 and
incorporated herein by reference. File No. 1-6368.
Exhibit 4-A-7 Form of Seventh Supplemental Indenture dated as of
January 15, 2002 between Ford Motor Credit Company
and JPMorgan Chase Bank supplementing the
Indenture designated as Exhibit 4-A.
Filed as Exhibit 4-I to Amendment No. 1 to Ford Motor
Credit Company Registration Statement
No. 333-75234 and incorporated herein by reference.
Exhibit 4-A-8 Form of Eighth Supplemental Indenture dated as of
June 5, 2006 between Ford Motor Credit Company and
JPMorgan Chase Bank N.A. supplementing the
Indenture designated as Exhibit 4-A.
Filed as Exhibit 4 to Ford Motor Credit Company
Current Report on Form 8-K dated May 25, 2006 and
incorporated herein by reference. File No. 1-6368.
Exhibit 4-A-9 Form of Ninth Supplemental Indenture dated as of
September 18, 2012 between Ford Motor Credit
Company LLC and The Bank of New York Mellon
supplementing the Indenture designated as Exhibit 4-A.
Filed as Exhibit 4 to Ford Motor Credit Company LLC
Current Report on Form 8-K dated September 18,
2012 and incorporated herein by reference. File
No. 1-6368.
Exhibit 4-B Form of Indenture dated as of March 16, 2015 between
Ford Motor Credit Company LLC and The Bank of New
York Mellon relating to Unsecured Debt Securities.
Filed as Exhibit 4-A to Ford Motor Credit Company
LLC Registration Statement No. 333-202789 and
incorporated by reference herein.
Exhibit 10-A Copy of Amended and Restated Relationship
Agreement dated as of April 30, 2015 between Ford
Motor Company and Ford Motor Credit Company LLC.
Filed as Exhibit 10 to Ford Motor Credit Company LLC
Current Report on Form 8-K dated April 30, 2015 and
incorporated herein by reference. File No. 1-6368.
Exhibit 10-B Copy of Amended and Restated Support Agreement
dated as of September 20, 2004 between Ford Motor
Credit Company and FCE Bank plc.
Filed as Exhibit 10 to Ford Motor Credit Company
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004 and incorporated herein by
reference. File No. 1-6368.
Exhibit 10-C Copy of Amended and Restated Tax Sharing Agreement
dated as of December 12, 2006 between Ford Motor
Credit Company and Ford Motor Company.
Filed as Exhibit 10.2 to Ford Motor Credit Company
Current Report on Form 8-K dated December 12, 2006
and incorporated herein by reference. File No. 1-6368.
Exhibit 12 Calculation of Ratio of Earnings to Fixed Charges. Filed with this Report.
65
Designation Description Method of Filing
Exhibit 23 Consent of Independent Registered Public Accounting
Firm.
Filed with this Report.
Exhibit 24 Powers of Attorney. Filed with this Report.
Exhibit 31.1 Rule 15d-14(a) Certification of CEO. Filed with this Report.
Exhibit 31.2 Rule 15d-14(a) Certification of CFO. Filed with this Report.
Exhibit 32.1 Section 1350 Certification of CEO. Furnished with this Report.
Exhibit 32.2 Section 1350 Certification of CFO. Furnished with this Report.
Exhibit 99 Parts I, II (other than Items 6 and 8) and III of Ford
Motor Company’s Annual Report on Form 10-K for the
year ended December 31, 2016.
Incorporated herein by reference to Ford Motor
Company’s Annual Report on Form 10-K for the year
ended December 31, 2016. File No. 1-3950.
Exhibit 101.INS XBRL Instance Document. *
Exhibit 101.SCH XBRL Taxonomy Extension Schema Document. *
Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase
Document.
*
Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase Document. *
Exhibit 101.PRE XBRL Taxonomy Extension Presentation Linkbase
Document.
*
Exhibit 101.DEF XBRL Taxonomy Extension Definition Linkbase
Document.
*
__________
* Submitted electronically with this Report in accordance with the provisions of Regulation S-T.
Instruments defining the rights of holders of certain issues of long-term debt of Ford Credit have not been filed as
exhibits to this Report because the authorized principal amount of any one of such issues does not exceed 10% of the
total assets of Ford Credit. Ford Credit will furnish a copy of each such instrument to the SEC upon request.
ITEM 16. Form 10-K Summary.
None.
66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Ford Motor Credit
Company LLC has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
FORD MOTOR CREDIT COMPANY LLC
By: /s/ Marion B. Harris
Marion B. Harris
Chief Financial Officer and Treasurer
Date: February 9, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of Ford Motor Credit Company LLC and in the capacities and on the dates indicated.
Signature Title Date
N. JOY FALOTICO* Director, Chairman of the Board and Chief
Executive Officer (principal executive officer)
February 9, 2017
N. Joy Falotico
JOHN T. LAWLER* Director and Audit Committee Member February 9, 2017
John T. Lawler
NEIL M. SCHLOSS* Director and Chair of the Audit Committee February 9, 2017
Neil M. Schloss
THOMAS C. SCHNEIDER* Director and Executive Vice President, Chief
Risk Officer
February 9, 2017
Thomas C. Schneider
MARION B. HARRIS* Director, Chief Financial Officer and
Treasurer (principal financial officer and
principal accounting officer)
February 9, 2017
Marion B. Harris
* By /s/ DAVID J. WITTEN Attorney-in-Fact February 9, 2017
David J. Witten
FC-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of
Ford Motor Credit Company LLC:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income,
comprehensive income, shareholder’s interest and cash flows present fairly, in all material respects, the financial position
of Ford Motor Credit Company LLC and its subsidiaries (the “Company”) at December 31, 2016 and December 31, 2015,
and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016
in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial
statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting
appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s
internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
February 9, 2017
FC-2
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(in millions)
For the Years Ended December 31,
2014 2015 2016
Financing revenue
Operating leases $ 4,129 $ 4,865 $ 5,555
Retail financing 2,776 2,819 3,070
Dealer financing 1,620 1,539 1,760
Other 81 57 38
Total financing revenue 8,606 9,280 10,423
Depreciation on vehicles subject to operating leases (3,088) (3,640) (4,329)
Interest expense (2,656) (2,416) (2,755)
Net financing margin 2,862 3,224 3,339
Other revenue
Insurance premiums earned (Note 14) 125 133 156
Other income, net (Note 15) 265 284 330
Total financing margin and other revenue 3,252 3,641 3,825
Expenses
Operating expenses 1,094 1,139 1,274
Provision for credit losses (Note 6) 197 347 547
Insurance expenses (Note 14) 107 69 125
Total expenses 1,398 1,555 1,946
Income before income taxes 1,854 2,086 1,879
Provision for income taxes (Note 12) 149 723 506
Net income $ 1,705 $ 1,363 $ 1,373
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
For the Years Ended December 31,
2014 2015 2016
Net income $ 1,705 $ 1,363 $ 1,373
Other comprehensive income/(loss), net of tax (Note 13)
Foreign currency translation (547) (766) (283)
Total other comprehensive income/(loss), net of tax (547) (766) (283)
Comprehensive income 1,158 597 1,090
Less: Comprehensive income/(loss) attributable to noncontrolling interests — 1 —
Comprehensive income/(loss) attributable to Ford Motor Credit Company $ 1,158 $ 596 $ 1,090
The accompanying notes are part of the financial statements.
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FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
December 31,
2015
December 31,
2016
ASSETS
Cash and cash equivalents (Note 3) $ 8,886 $ 8,077
Marketable securities (Note 3) 2,723 3,280
Finance receivables, net (Note 4) 96,823 102,981
Net investment in operating leases (Note 5) 25,079 27,209
Notes and accounts receivable from affiliated companies 727 811
Derivative financial instruments (Note 9) 924 909
Other assets (Note 10) 2,286 2,822
Total assets $ 137,448 $ 146,089
LIABILITIES
Accounts payable
Customer deposits, dealer reserves, and other $ 1,104 $ 1,065
Affiliated companies 313 336
Total accounts payable 1,417 1,401
Debt (Note 11) 119,601 126,492
Deferred income taxes 2,808 3,230
Derivative financial instruments (Note 9) 243 166
Other liabilities and deferred income (Note 10) 1,665 1,997
Total liabilities 125,734 133,286
SHAREHOLDER’S INTEREST
Shareholder’s interest 5,227 5,227
Accumulated other comprehensive income/(loss) (Note 13) (607) (890)
Retained earnings 7,093 8,466
Total shareholder’s interest attributable to Ford Motor Credit Company 11,713 12,803
Shareholder’s interest attributable to noncontrolling interests 1 —
Total shareholder’s interest 11,714 12,803
Total liabilities and shareholder’s interest $ 137,448 $ 146,089
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 7 and 8 for
additional information on our VIEs.
December 31,
2015
December 31,
2016
ASSETS
Cash and cash equivalents $ 3,949 $ 3,047
Finance receivables, net 45,902 50,857
Net investment in operating leases 13,309 11,761
Derivative financial instruments 85 25
LIABILITIES
Debt $ 43,086 $ 43,730
Derivative financial instruments 19 5
The accompanying notes are part of the financial statements.
FC-4
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER’S INTEREST
(in millions)
Shareholder’s Interest Attributable to Ford Motor Credit Company
Shareholder’s
Interest
Accumulated
Other
Comprehensive
Income/(Loss)
(Note 13)
Retained
Earnings Total
Shareholder’s
Interest
Attributable
to NonControlling
Interests
Total
Shareholder’s
Interest
Year Ended December 31, 2013 $ 5,217 $ 717 $ 4,670 $ 10,604 $ — $ 10,604
Net income — — 1,705 1,705 — 1,705
Other comprehensive income/(loss), net
of tax 10 (557) — (547) — (547)
Distributions declared — — (395) (395) — (395)
Year Ended December 31, 2014 $ 5,227 $ 160 $ 5,980 $ 11,367 $ — $ 11,367
Net income — — 1,363 1,363 — 1,363
Other comprehensive income/(loss), net
of tax — (767) — (767) 1 (766)
Distributions declared — — (250) (250) — (250)
Year Ended December 31, 2015 $ 5,227 $ (607) $ 7,093 $ 11,713 $ 1 $ 11,714
Net income — — 1,373 1,373 — 1,373
Other comprehensive income/(loss), net
of tax — (283) — (283) — (283)
Distributions declared — — — — (1) (1)
Year Ended December 31, 2016 $ 5,227 $ (890) $ 8,466 $ 12,803 $ — $ 12,803
The accompanying notes are part of the financial statements.
FC-5
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
For the Years Ended December 31,
2014 2015 2016
Cash flows from operating activities
Net income $ 1,705 $ 1,363 $ 1,373
Adjustments to reconcile net income to net cash provided by operations
Provision for credit losses 197 347 547
Depreciation and amortization 3,955 4,465 5,121
Amortization of upfront interest supplements (1,021) (1,078) (1,341)
Net change in deferred income taxes 230 1,042 340
Net change in other assets 106 129 (413)
Net change in other liabilities (294) (348) 462
All other operating activities (63) (210) 142
Net cash provided by/(used in) operating activities 4,815 5,710 6,231
Cash flows from investing activities
Purchases of finance receivables (excluding wholesale and other) (35,818) (39,512) (37,494)
Collections of finance receivables (excluding wholesale and other) 30,341 31,560 30,924
Purchases of operating lease vehicles (12,694) (14,355) (14,441)
Liquidations of operating lease vehicles 6,152 6,570 7,920
Net change in wholesale receivables and other (2,189) (5,126) (1,499)
Purchases of marketable securities (13,598) (12,199) (7,289)
Proceeds from sales and maturities of marketable securities 12,236 12,704 6,756
Settlements of derivatives 34 210 215
All other investing activities 33 20 (164)
Net cash provided by/(used in) investing activities (15,503) (20,128) (15,072)
Cash flows from financing activities
Proceeds from issuances of long-term debt 39,858 48,124 42,971
Principal payments on long-term debt (27,801) (31,474) (38,000)
Change in short-term debt, net (3,757) 1,229 3,403
Cash distributions to parent (395) (250) —
All other financing activities (109) (101) (103)
Net cash provided by/(used in) financing activities 7,796 17,528 8,271
Effect of exchange rate changes on cash and cash equivalents (353) (403) (239)
Net increase/(decrease) in cash and cash equivalents $ (3,245) $ 2,707 $ (809)
Cash and cash equivalents at January 1 $ 9,424 $ 6,179 $ 8,886
Net increase/(decrease) in cash and cash equivalents (3,245) 2,707 (809)
Cash and cash equivalents at December 31 $ 6,179 $ 8,886 $ 8,077
Supplementary cash flow information for continuing operations
Interest paid $ 2,652 $ 2,239 $ 2,443
Income taxes paid 314 74 107
The accompanying notes are part of the financial statements.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-6
Table of Contents
Footnote Page
Note 1 Presentation
Note 2 Accounting Policies
Note 3 Cash, Cash Equivalents, and Marketable Securities FC-9
Note 4 Finance Receivables
Note 5 Net Investment in Operating Leases
Note 6 Allowance for Credit Losses
Note 7 Transfers of Receivables
Note 8 Variable Interest Entities
Note 9 Derivative Financial Instruments and Hedging Activities
Note 10 Other Assets and Other Liabilities and Deferred Income
Note 11 Debt and Commitments
Note 12 Income Taxes
Note 13 Accumulated Other Comprehensive Income/(Loss)
Note 14 Insurance
Note 15 Other Income, Net
Note 16 Retirement Benefits
Note 17 Segment and Geographic Information
Note 18 Selected Quarterly Financial Data (unaudited)
Note 19 Commitments and Contingencies
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FC-39
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-7
NOTE 1. PRESENTATION
Principles of Consolidation
The accompanying consolidated financial statements include Ford Motor Credit Company LLC, its controlled domestic
and foreign subsidiaries and joint ventures, 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”). Affiliates that we do not
consolidate, but for which we have significant influence over operating and financial policies, are accounted for using the
equity method. We are an indirect, wholly owned subsidiary of Ford Motor Company (“Ford”).
We prepare our financial statements in accordance with generally accepted accounting principles in the United States
(“GAAP”).
We reclassified certain prior period amounts in our consolidated financial statements to conform to current year
presentation.
Nature of Operations
We offer a wide variety of automotive financing products to and through automotive dealers throughout the world. Our
portfolio consists of finance receivables and net investment in operating leases. We also service the finance receivables
and net investment in operating leases we originate and purchase, make loans to Ford affiliates, and provide insurance
services related to our financing programs. See Notes 4 and 5 for additional information.
We conduct our financing operations directly and indirectly through our subsidiaries and affiliates. We offer
substantially similar products and services throughout many different regions, subject to local legal restrictions and market
conditions. See Note 17 for key operating data on our business segments and for geographic information on our regions.
The predominant share of our business consists of financing Ford vehicles and supporting Ford dealers. Any
extended reduction or suspension of Ford’s production or sale of vehicles due to a decline in consumer demand, work
stoppage, governmental action, negative publicity or other event, or significant changes to marketing programs sponsored
by Ford, would have an adverse effect on our business.
Certain subsidiaries are subject to regulatory capital requirements that may limit the ability of those subsidiaries to pay
dividends.
NOTE 2. ACCOUNTING POLICIES
For each accounting topic that is addressed in its own note, the description of the accompanying accounting policy
may be found in the related note. The remaining accounting policies are described below.
Use of Estimates
The preparation of financial statements requires the use of estimates, as determined by management. Because of
the inherent uncertainty involved in making estimates, actual results reported in future periods might be based upon
amounts that differ from those estimates. The accounting estimates that are most important to our business involve the
allowance for credit losses and accumulated depreciation on vehicles subject to operating leases.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-8
NOTE 2. ACCOUNTING POLICIES (Continued)
Foreign Currency
We remeasure monetary assets and liabilities denominated in a currency that is different than a reporting entity’s
functional currency from the transactional currency to the legal entity’s functional currency. The effect of this
remeasurement process, and the results of our foreign currency hedging activities are reported in Other income, net.
Generally, our foreign subsidiaries use the local currency as their functional currency. We translate the assets and
liabilities of our foreign subsidiaries from their respective functional currencies to U.S. dollars using end-of-period
exchange rates. Changes in the carrying value of these assets and liabilities attributable to fluctuations in exchange rates
are recognized in Foreign currency translation, a component of Other comprehensive income/(Ioss), net of tax. Upon sale
or upon complete or substantially complete liquidation of an investment in a foreign subsidiary, the amount of accumulated
foreign currency translation related to the entity is reclassified to Net income and recognized as part of the gain or loss on
the investment.
Fair Value Measurements
Cash equivalents, marketable securities, and derivative financial instruments are remeasured and presented on our
financial statements on a recurring basis at fair value, while other assets and liabilities are measured at fair value on a
nonrecurring basis.
In measuring fair value, we use various valuation methods and prioritize the use of observable inputs. The use of
observable and unobservable inputs and their significance in measuring fair value are reflected in our fair value hierarchy.
• Level 1 – inputs include quoted prices for identical instruments and are the most observable
• Level 2 – inputs include quoted prices for similar instruments 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 judgment about the
assumptions market participants would use in pricing the instruments
Transfers into and transfers out of the hierarchy levels are recognized as if they had taken place at the end of the
reporting period.
Adoption of New Accounting Standards
We adopted the following standards during 2016, none of which have a material impact to our financial statements or
financial statement disclosures:
Standard Effective Date
2015-16 Business Combinations – Simplifying the Accounting for Measurement-Period Adjustments January 1, 2016
2015-09 Insurance – Disclosures about Short-Duration Contracts January 1, 2016
2015-05 Internal-Use Software – Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement January 1, 2016
2015-02 Consolidation – Amendments to the Consolidation Analysis January 1, 2016
2015-01 Extraordinary and Unusual Items – Simplifying Income Statement Presentation by Eliminating the Concept of
Extraordinary Items
January 1, 2016
2014-12 Stock Compensation – Accounting for Share-Based Payments When the Terms of an Award Provide That a
Performance Target Could Be Achieved after the Requisite Service Period
January 1, 2016
2014-15 Going Concern – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern December 31, 2016
FORD MOTOR CREDIT COMPANY LLC AND
SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-9
NOTE 2. ACCOUNTING POLICIES (Continued)
Accounting Standards Issued But Not Yet Adopted
The following represent the standards that will, or are expected to, result in a significant change in practice and/or
have a significant financial impact to Ford Credit.
Accounting Standard Update (“ASU”) 2016-13, Credit Losses – Measurement of Credit Losses on Financial
Instruments. In June 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard which
replaces the current incurred loss impairment method with a method that reflects expected credit losses. The new
standard is effective as of January 1, 2020, and early adoption is permitted as of January 1, 2019. We are assessing the
potential impact to our financial statements and disclosures.
ASU 2016-02, Leases. In February 2016, the FASB issued a new accounting standard which provides guidance on
the recognition, measurement, presentation, and disclosure of leases. The new standard supersedes present U.S. GAAP
guidance on leases and requires substantially all leases to be reported on the balance sheet as right-of-use assets and
lease liabilities, as well as additional disclosures. The new standard is effective as of January 1, 2019, and early adoption
is permitted. We are assessing the potential impact to our financial statements and disclosures.
ASU 2014-09, Revenue – Revenue from Contracts with Customers. In May 2014, the FASB issued a new accounting
standard that requires recognition of revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. The
FASB has also issued several updates to ASU 2014-09. The new standard supersedes U.S. GAAP guidance on revenue
recognition and requires the use of more estimates and judgments than the present standards. It also requires additional
disclosures. We will adopt the new revenue guidance effective January 1, 2017, by recognizing the cumulative effect of
initially applying the new standard as an increase of about $10 million to the opening balance of retained earnings. We
expect this adjustment to have an immaterial impact to our net income on an ongoing basis. Adoption of the new
standard will also result in changes in classification between Other revenue and Other income/(loss), net.
NOTE 3. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
Cash and Cash Equivalents. Included in Cash and cash equivalents are highly liquid investments that are readily
convertible to known amounts of cash and are subject to an insignificant risk of change in value due to interest rate,
quoted price, or penalty on withdrawal. A debt security is classified as a cash equivalent if it meets these criteria and if it
has a remaining time to maturity of three months or less from the date of acquisition. Amounts on deposit and available
upon demand, or negotiated to provide for daily liquidity without penalty, are classified as Cash and cash equivalents.
Time deposits, certificates of deposit, and money market accounts that meet the above criteria are reported at par value
on our balance sheet.
Marketable Securities. Investments in securities with a maturity date greater than three months at the date of
purchase and other securities for which there is more than an insignificant risk of change in value due to interest rate,
quoted price, or penalty on withdrawal are classified as Marketable securities. We generally measure fair value using
prices obtained from pricing services. Pricing methods 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 buyer stands ready to purchase),
and other market information. For fixed income securities that are not actively traded, the pricing services use alternative
methods to determine fair value for the securities, including quotes for similar fixed income securities, matrix pricing,
discounted cash flow using benchmark curves, or other factors. In certain cases, when market data are not available, we
may use broker quotes to determine fair value.
An annual review is performed on the security prices received from our pricing services, which includes discussion
and analysis of the inputs used by the pricing services to value our securities. We also compare the price of certain
securities sold close to the quarter end to the price of the same security at the balance sheet date to ensure the reported
fair value is reasonable.
Realized and unrealized gains and losses and interest income on our marketable securities are recorded in Other
income, net. Realized gains and losses are measured using the specific identification method.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-10
NOTE 3. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)
The following table categorizes the fair values of cash, cash equivalents, and marketable securities measured at fair
value on a recurring basis on our balance sheet at December 31 (in millions):
Fair Value
Level 2015 2016
Cash and cash equivalents
U.S. government 1 $ — $ 924
U.S. government and agencies 2 — —
Non-U.S. government and agencies 2 266 142
Corporate debt 2 — —
Total marketable securities classified as cash equivalents 266 1,066
Cash, time deposits and money market funds 8,620 7,011
Total cash and cash equivalents $ 8,886 $ 8,077
Marketable Securities
U.S. government 1 $ 298 $ 1,634
U.S. government and agencies 2 1,169 505
Non-U.S. government and agencies 2 832 632
Corporate debt 2 384 475
Other marketable securities 2 40 34
Total marketable securities $ 2,723 $ 3,280
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-11
NOTE 4. FINANCE RECEIVABLES
We segment finance receivables into “consumer” and “non-consumer” receivables. The receivables are generally
secured by the vehicles, inventory, or other property being financed.
Finance receivables are recorded at the time of origination or purchase at fair value and are subsequently reported at
amortized cost, net of any allowance for credit losses.
Revenue from finance receivables is recognized using the interest method and includes the accretion of certain direct
origination costs that are deferred and interest supplements received from Ford and affiliated companies. The unearned
interest supplements on consumer finance receivables are included in Finance receivables, net on the balance sheet, and
the earned interest supplements are included in Financing revenue on the income statement.
We measure finance receivables at fair value for purposes of disclosure 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 present value based on assumptions regarding credit losses, prepayment
speed, and applicable spreads to approximate current rates. Our assumptions regarding pre-payment speed
and credit losses are based on historical performance. The fair value of finance receivables is categorized within Level 3
of the hierarchy.
On a nonrecurring basis, we also measure at fair value retail contracts greater than 120 days past due or deemed to
be uncollectible, and individual dealer loans probable of foreclosure. We use the fair value of collateral, adjusted for
estimated costs to sell, to determine the fair value of our receivables. The collateral for a retail receivable is the vehicle
financed, and for dealer loans is real estate or other property.
The fair value of collateral for retail receivables is calculated by multiplying the outstanding receivable balances by the
average recovery value percentage. The fair value of collateral for dealer loans is determined by reviewing various
appraisals, which include total adjusted appraised value of land and improvements, alternate use appraised value,
broker’s opinion of value, and purchase offers.
Consumer Segment. Receivables in this portfolio segment include products offered to individuals and businesses that
finance the acquisition of Ford and Lincoln vehicles from dealers for personal or commercial use. Retail financing
includes retail installment contracts for new and used vehicles and direct financing leases with retail customers,
government entities, daily rental companies, and fleet customers.
Non-Consumer Segment. Receivables in this portfolio segment include products offered to automotive dealers and
receivables purchased from Ford and its affiliates. The products include:
• Dealer financing – includes wholesale loans to dealers to finance the purchase of vehicle inventory, also known
as floorplan financing, as well as loans to dealers to finance working capital and improvements to dealership
facilities, finance the purchase of dealership real estate, and finance other dealer programs. Wholesale financing
is approximately 93% of our dealer financing.
• Other financing – includes purchased receivables from Ford and its affiliates, primarily related to the sale of parts
and accessories to dealers, receivables from Ford related loans, and certain used vehicles from daily rental fleet
companies. These receivables are excluded from our credit quality reporting since the performance of this group
of receivables is generally guaranteed by Ford.
Notes and accounts receivable from affiliated companies are presented separately on the balance sheet. These
receivables are based on intercompany relationships and the balances are settled regularly. We do not assess these
receivables for potential credit losses, nor are they subjected to aging analysis, credit quality reviews, or other formal
assessments. As a result, Notes and accounts receivable from affiliated companies are not subject to the following
disclosures contained herein.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-12
NOTE 4. FINANCE RECEIVABLES (Continued)
Finance Receivables, Net
Finance receivables, net at December 31 were as follows (in millions):
2015 2016
Consumer
Retail financing, gross $ 62,068 $ 68,121
Unearned interest supplements from Ford and affiliated companies (2,119) (2,783)
Consumer finance receivables 59,949 65,338
Non-Consumer
Dealer financing (a) 36,037 36,951
Other financing 1,210 1,176
Non-Consumer finance receivables (b) 37,247 38,127
Total recorded investment (c) $ 97,196 $ 103,465
Recorded investment in finance receivables $ 97,196 $ 103,465
Allowance for credit losses (373) (484)
Finance receivables, net (a) $ 96,823 $ 102,981
Net finance receivables subject to fair value (d) $ 95,008 $ 100,857
Fair value 96,180 101,576
__________
(a) At December 31, 2015 and 2016, includes $4.4 billion and $5.2 billion, respectively, of receivables generated by divisions and affiliates of Ford in
connection with vehicle inventories released from Ford and in delivery to the destination dealers, and $508 million and $399 million, respectively, of
dealer financing receivables with entities (primarily dealers) that are reported as consolidated subsidiaries of Ford. For the years ended
December 31, 2014, 2015, and 2016, the interest earned on receivables from consolidated subsidiaries of Ford to which we provide financing was
$5 million, $6 million, and $9 million, respectively. Consolidated subsidiaries of Ford include dealerships that are partially owned by Ford as
consolidated 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) The amount of interest earned from Ford and affiliated companies associated with purchased receivables and receivables from gate released
vehicles in transit to dealers for the years ended December 31, 2014, 2015, and 2016, were $171 million, $183 million, and $167 million,
respectively.
(c) The amount of interest supplements from Ford and affiliated companies earned for the years ended December 31, 2014, 2015, and 2016 were
$1.4 billion, $1.3 billion, and $1.6 billion, respectively, and the amount of interest supplements cash received related to consumer finance
receivables totaled $1.3 billion, $1.5 billion, and $2.0 billion, respectively.
(d) Included in Finance receivables, net at December 31, 2015 and 2016, was $1.8 billion and $2.1 billion, respectively, of net investment in direct
financing leases that are not subject to fair value disclosure requirements.
Excluded from finance receivables at December 31, 2015 and 2016 was $209 million and $224 million, respectively,
of accrued uncollected interest, which we report in Other assets on our balance sheet.
Included in recorded investment in finance receivables at December 31, 2015 and 2016 were consumer receivables
of $27.6 billion and $32.5 billion, respectively, and non-consumer receivables of $26.1 billion and $26.0 billion,
respectively, that have been sold for legal purposes in securitization transactions but continue to be reported in our
consolidated financial statements. The receivables are available only for payment of the debt issued by, and other
obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay
the other obligations or the claims of Ford Credit’s other creditors. Ford Credit holds the right to receive the excess cash
flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those
securitization transactions (see Note 7 for additional information).
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-13
NOTE 4. FINANCE RECEIVABLES (Continued)
Contractual maturities of total finance receivables outstanding at December 31, 2016 reflect contractual repayments
due from customers or borrowers and were as follows (in millions):
Due in Year Ending December 31,
2017 2018 2019 Thereafter Total
Consumer
Retail financing, gross (a) $ 19,460 $ 17,550 $ 14,185 $ 16,926 $ 68,121
Non-Consumer
Dealer financing 33,207 1,028 141 2,575 36,951
Other financing 1,176 — — — 1,176
Total finance receivables $ 53,843 $ 18,578 $ 14,326 $ 19,501 $ 106,248
__________
(a) Contractual maturities of retail financing, gross include $183 million of estimated unguaranteed residual values related to direct financing leases.
Our finance receivables are generally pre-payable without penalty, so prepayments may cause actual maturities to
differ from contractual maturities. The above table, therefore, is not to be regarded as a forecast of future cash
collections. For wholesale receivables, which are included in dealer financing, maturities stated above are estimated
based on historical trends, as maturities on outstanding amounts are scheduled upon the sale of the underlying vehicle by
the dealer.
Aging
For all finance receivables, we define “past due” as any payment, including principal and interest, that is at least
31 days past the contractual due date. The recorded investment of consumer receivables greater than 90 days past due
and still accruing interest was $16 million and $21 million at December 31, 2015 and 2016, respectively. The recorded
investment of non-consumer receivables greater than 90 days past due and still accruing interest was $1 million and
de minimus at December 31, 2015 and 2016, respectively.
The aging analysis of finance receivables balances at December 31 was as follows (in millions):
2015 2016
Consumer
31-60 days past due $ 708 $ 760
61-90 days past due 108 114
91-120 days past due 27 34
Greater than 120 days past due 38 39
Total past due 881 947
Current 59,068 64,391
Consumer finance receivables 59,949 65,338
Non-Consumer
Total past due 116 107
Current 37,131 38,020
Non-Consumer finance receivables 37,247 38,127
Total recorded investment $ 97,196 $ 103,465
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-14
NOTE 4. FINANCE RECEIVABLES (Continued)
Credit Quality
Consumer Segment. When originating all classes of consumer receivables (i.e., retail and lease products), we use a
proprietary scoring system that measures credit quality using information in the credit application, proposed contract
terms, credit bureau data, and other information we obtain. After a proprietary risk score is generated, we decide whether
to originate a contract using a decision process based on a judgmental evaluation of the applicant, the credit application,
the proposed contract terms, credit bureau information (e.g., FICO score), proprietary risk score, and other information.
Our evaluation emphasizes the applicant’s ability to pay and creditworthiness focusing on payment, affordability, applicant
credit history, and stability as key considerations.
Subsequent to origination, we review the credit quality of retail financing based on customer payment activity. As
each customer develops a payment history, we use an internally developed behavioral scoring model to assist in
determining the best collection strategies, which allows us to focus collection activity on higher-risk accounts. These
models are used to refine our risk-based staffing model to ensure collection resources are aligned with portfolio risk.
Based on data from this scoring model, contracts are categorized by collection risk. Our collection models evaluate
several factors, including origination characteristics, updated credit bureau data, and payment patterns.
Credit quality ratings for consumer receivables are based on our aging analysis. Refer to the aging table above.
Consumer receivables credit quality ratings are as follows:
• Pass – current to 60 days past due
• Special Mention – 61 to 120 days past due and in intensified collection status
• Substandard – greater than 120 days past due and for which the uncollectible portion of the receivables has
already been charged off, as measured using the fair value of collateral less costs to sell
Non-Consumer Segment. We extend credit to dealers primarily in the form of lines of credit to purchase new Ford
and Lincoln vehicles as well as used vehicles. Payment is required when the dealer has sold the vehicle. Each nonconsumer
lending request is evaluated by taking into consideration the borrower’s financial condition and the underlying
collateral securing the loan. We use a proprietary model to assign each dealer a risk rating. This model uses historical
dealer performance data to identify key factors about a dealer that we consider most significant in predicting a dealer’s
ability to meet its financial obligations. We also consider numerous other financial and qualitative factors of the dealer’s
operations including capitalization and leverage, liquidity and cash flow, profitability, and credit history with ourselves and
other creditors.
Dealers are assigned to one of four groups according to risk ratings as follows:
• Group I – strong to superior financial metrics
• Group II – fair to favorable financial metrics
• Group III – marginal to weak financial metrics
• Group IV – poor financial metrics, including dealers classified as uncollectible
We generally suspend credit lines and extend no further funding to dealers classified in Group IV.
We regularly review our model to confirm the continued business significance and statistical predictability of the
factors and update the model to incorporate new factors or other information that improves its statistical predictability. In
addition, we regularly audit dealer inventory and dealer sales records to verify that the dealer is in possession of the
financed vehicles and is promptly paying each receivable following the sale of the financed vehicle. The frequency of onsite
vehicle inventory audits depends on factors such as the dealer’s risk rating and our security position. Under our
policies, on-site vehicle inventory audits of low-risk dealers are conducted only as circumstances warrant. Audits of
higher-risk dealers are conducted with increased frequency based on risk ratings and our security position. We perform a
credit review of each dealer at least annually and adjust the dealer’s risk rating, if necessary.
The credit quality of dealer financing receivables is evaluated based on our internal dealer risk rating analysis. A
dealer has the same risk rating for its entire dealer financing regardless of the type of financing.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-15
NOTE 4. FINANCE RECEIVABLES (Continued)
The credit quality analysis of our dealer financing receivables at December 31 was as follows (in millions):
2015 2016
Dealer financing
Group I $ 27,054 $ 29,926
Group II 7,185 5,552
Group III 1,687 1,380
Group IV 111 93
Total recorded investment $ 36,037 $ 36,951
Impaired Receivables
Impaired consumer receivables include accounts that have been rewritten or modified in reorganization proceedings
pursuant to the U.S. Bankruptcy Code that are considered to be Troubled Debt Restructurings (“TDRs”), as well as all
accounts greater than 120 days past due. Impaired non-consumer receivables represent accounts with dealers that have
weak or poor financial metrics or dealer financing that has been modified in TDRs. The recorded investment of consumer
receivables that were impaired at December 31, 2015 and 2016 was $375 million, or 0.6% of consumer receivables, and
$367 million, or 0.6% of consumer receivables, respectively. The recorded investment of non-consumer receivables that
were impaired at December 31, 2015 and 2016 was $134 million, or 0.4% of non-consumer receivables, and $107 million,
or 0.3% of non-consumer receivables, respectively. Impaired finance receivables are evaluated both collectively and
specifically. See Note 6 for additional information related to the development of our allowance for credit losses.
The accrual of revenue is discontinued at the time a receivable is determined to be uncollectible. Accounts may be
restored to accrual status only when a customer settles all past-due deficiency balances and future payments are
reasonably assured. For receivables in non-accrual status, subsequent financing revenue is recognized only to the extent
a payment is received. Payments are generally applied first to outstanding interest and then to the unpaid principal
balance.
A restructuring of debt constitutes a TDR if we grant a concession to a debtor for economic or legal reasons related to
the debtor’s financial difficulties that we otherwise would not consider. Consumer and non-consumer receivables that
have a modified interest rate below market rate or that were modified in reorganization proceedings pursuant to the
U.S. Bankruptcy Code, except non-consumer receivables that are current with minimal risk of loss, are considered to be
TDRs. We do not grant concessions on the principal balance of our receivables. If a receivable is modified in a
reorganization proceeding, all payment requirements of the reorganization plan need to be met before remaining balances
are forgiven. Finance receivables involved in TDRs are specifically assessed for impairment.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-16
NOTE 5. NET INVESTMENT IN OPERATING LEASES
Net investment in operating leases consist primarily of lease contracts for vehicles with retail customers, daily rental
companies, and fleet customers with terms of 60 months or less.
Revenue from rental payments received on operating leases is recognized on a straight-line basis over the term of the
lease. The accrual of revenue on operating leases is discontinued at the time an account is determined to be
uncollectible.
We receive interest supplements and residual support payments on certain leasing transactions under agreements
with Ford. We recognize these upfront collections from Ford and other vehicle acquisition costs as part of Net investment
in operating leases, which are amortized to Depreciation on vehicles subject to operating leases over the term of the lease
contract. The amount of unearned interest supplements and residual support included in Net investment in operating
leases at December 31, 2015 and 2016 was $2.4 billion and $2.5 billion, respectively. The amount of earned interest
supplements and residual support costs included in Depreciation on vehicles subject to operating lease for the years
ended December 31, 2014, 2015, and 2016 was $1.3 billion, $1.5 billion, and $1.9 billion, respectively. The amount of
interest supplements and residual support cash received totaled $1.8 billion, $1.9 billion, and $2.0 billion for the years
ended December 31, 2014, 2015, and 2016, respectively.
Depreciation expense on vehicles subject to operating leases is recognized on a straight-line basis in an amount
necessary to reduce the leased vehicle value to its estimated residual value at the end of the lease term. Our policy is to
promptly sell returned off-lease vehicles. We evaluate our depreciation for leased vehicles on a regular basis taking into
consideration various assumptions, such as expected residual values at lease termination (including residual value
support payments from Ford) and the estimated number of vehicles that will be returned to us. Adjustments to
depreciation expense reflecting revised estimates of expected residual values at the end of the lease terms are recorded
prospectively on a straight-line basis. Upon disposition of the vehicle, the difference between net book value and actual
proceeds is recorded as an adjustment to Depreciation on vehicles subject to operating leases.
We evaluate the carrying value of held-and-used long-lived asset groups (such as vehicles subject to operating
leases) for potential impairment when we determine a triggering event has occurred. When a triggering event occurs, a
test for recoverability is performed by comparing projected undiscounted future cash flows to the carrying value of the
asset group. If the test for recoverability identifies a possible impairment, the asset group’s fair value is measured in
accordance with the fair value measurement framework. An impairment charge is recognized for the amount by which the
carrying value of the asset group exceeds its estimated fair value. For the periods presented, we have not recorded any
impairment charges.
Net investment in operating leases at December 31 was as follows (in millions):
2015 2016
Vehicles, at cost (a) $ 29,673 $ 32,823
Accumulated depreciation (4,545) (5,550)
Net investment in operating leases before allowance for credit losses 25,128 27,273
Allowance for credit losses (49) (64)
Net investment in operating leases $ 25,079 $ 27,209
__________
(a) Includes interest supplements and residual support payments we receive on certain leasing transactions under agreements with Ford and affiliated
companies, and other vehicle acquisition costs.
At December 31, 2015 and 2016, net investment in operating leases before allowance for credit losses includes
$13.3 billion and $11.8 billion, respectively, of net investment in operating leases that have been included in securitization
transactions but continue to be reported in our consolidated financial statements. These net investments in operating
leases are available only for payment of the debt issued by, and other obligations of, the securitization entities that are
parties to those securitization transactions; they are not available to pay our other obligations or the claims of our other
creditors. We hold the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations
of, the securitization entities that are parties to those securitization transactions (see Note 7 for additional information).
FORD MOTOR CREDIT COMPANY LLC AND
SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-17
NOTE 5. NET INVESTMENT IN OPERATING LEASES (Continued)
We have entered into a sale-leaseback agreement with Ford primarily for vehicles that Ford leases to employees of
Ford and its subsidiaries. The investment in these vehicles is included in Net investment in operating leases and Ford
provides a limited guarantee of the residual value of these vehicles. The amount of employee and company vehicles at
December 31, 2015 and 2016 was $652 million and $907 million, respectively. For the years ended December 31, 2014,
2015, and 2016, the operating lease revenue related to these vehicles was $259 million, $284 million, and $302 million,
respectively.
The amounts contractually due for minimum rentals on operating leases at December 31, 2016 were as follows (in
millions):
2017 2018 2019 2020 2021
Minimum rentals on operating leases $ 4,349 $ 2,750 $ 949 $ 66 $ 5
NOTE 6. ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses represents our estimate of the probable credit loss inherent in finance receivables and
operating leases as of the balance sheet date. The adequacy of the allowance for credit losses is assessed quarterly and
the assumptions and models used in establishing the allowance are evaluated regularly. Because credit losses may vary
substantially over time, estimating credit losses requires a number of assumptions about matters that are uncertain. The
majority of credit losses are attributable to consumer receivables.
Additions to the allowance for credit losses are made by recording charges to the Provision for credit losses on the
income statement. The uncollectible portion of finance receivables and operating leases are charged to the allowance for
credit losses at the earlier of when an account is deemed to be uncollectible or when an account is 120 days delinquent,
taking into consideration the financial condition of the customer, borrower, or lessee, the value of the collateral, recourse
to guarantors, and other factors.
In the event we repossess the collateral, the receivable is charged off and we record the collateral at its estimated fair
value less costs to sell and report it in Other assets on the balance sheet. Charge-offs on finance receivables and
operating leases include uncollected amounts related to principal, interest, rental payments, late fees, and other allowable
charges. Recoveries on finance receivables and operating leases previously charged off as uncollectible are credited to
the allowance for credit losses.
Consumer Segment and Operating Leases
We estimate the allowance for credit losses on consumer receivables and on operating leases using a combination of
measurement models and management judgment. The models consider factors such as historical trends in credit losses
and recoveries (including key metrics such as delinquencies, repossessions, and bankruptcies), the composition of the
present portfolio (including vehicle brand, term, risk evaluation, and new/used vehicles), trends in historical used vehicle
values, and economic conditions. Estimates from these models rely on historical information and may not fully reflect
losses inherent in the present portfolio. Therefore, we may adjust the estimate to reflect management judgment regarding
observable changes in recent economic trends and conditions, portfolio composition, and other relevant factors.
We make projections of two key assumptions to assist in estimating the consumer allowance for credit losses:
• Frequency – number of finance receivables and operating lease contracts that are expected to default over the
loss emergence period, measured as repossessions; and
• Loss severity – expected difference between the amount a customer owes when the finance contract is charged
off and the amount received, net of expenses, from selling the repossessed vehicle.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-18
NOTE 6. ALLOWANCE FOR CREDIT LOSSES (Continued)
Collective Allowance for Credit Losses. The collective allowance is evaluated primarily using a collective loss-toreceivables
(“LTR”) model that, based on historical experience, indicates credit losses have been incurred in the portfolio
even though the particular accounts that are uncollectible cannot be specifically identified. The LTR model is based on
the most recent years of history. Each LTR is calculated by dividing credit losses by average finance receivables or
average operating leases, excluding unearned interest supplements and allowance for credit losses. An average LTR is
calculated for each product and multiplied by the end-of-period balances for that given product.
Our largest markets also use a loss projection model to estimate losses inherent in the portfolio. The loss projection
model applies recent monthly performance metrics, stratified by contract type (retail or lease), contract term (e.g.,
60-month), and risk rating to our active portfolio to estimate the losses that have been incurred.
The loss emergence period (“LEP”) is an assumption within our models and represents the average amount of time
between when a loss event first occurs to when it is charged off. This time period starts when the consumer begins to
experience financial difficulty. It is evidenced, typically through delinquency, before eventually resulting in a charge-off.
The LEP is a multiplier in the calculation of the collective consumer allowance for credit losses.
For accounts greater than 120 days past due, the uncollectible portion is charged off such that the remaining recorded
investment is equal to the estimated fair value of the collateral less costs to sell.
Specific Allowance for Impaired Receivables. Consumer receivables involved in TDRs are specifically assessed for
impairment. A specific allowance is estimated based on the present value of the expected future cash flows of the
receivable discounted at the contract’s original effective interest rate or the fair value of any collateral adjusted for
estimated costs to sell.
After establishing the collective and specific allowance for credit losses, if management believes the allowance does
not reflect all losses inherent in the portfolio due to changes in recent economic trends and conditions, or other relevant
factors, an adjustment is made based on management judgment.
Non-Consumer Segment
We estimate the allowance for credit losses for non-consumer receivables based on historical LTR ratios, expected
future cash flows, and the fair value of collateral.
Collective Allowance for Credit Losses. We estimate an allowance for non-consumer receivables that are not
specifically identified as impaired using a LTR model for each financing product based on historical experience. This LTR
is an average of the most recent historical experience and is calculated consistent with the consumer receivables LTR
approach. All accounts that are specifically identified as impaired are excluded from the calculation of the non-specific or
collective allowance.
Specific Allowance for Impaired Receivables. Dealer financing is evaluated by segmenting individual loans by the risk
characteristics of the loan (such as the amount of the loan, the nature of the collateral, and the financial status of the
debtor). The loans are analyzed to determine whether individual loans are impaired, and a specific allowance is
estimated based on the present value of the expected future cash flows of the receivable discounted at the loan’s original
effective interest rate or the fair value of the collateral adjusted for estimated costs to sell.
After establishing the collective and specific allowance for credit losses, if management believes the allowance does
not reflect all losses inherent in the portfolio due to changes in recent economic trends and conditions, or other relevant
factors, an adjustment is made based on management judgment.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-19
NOTE 6. ALLOWANCE FOR CREDIT LOSSES (Continued)
An analysis of the allowance for credit losses related to finance receivables and net investment in operating leases for
the years ended December 31 was as follows (in millions):
2015
Finance Receivables Net Investment in
Consumer Non-Consumer Total Operating Leases Total Allowance
Allowance for credit losses
Beginning balance $ 305 $ 16 $ 321 $ 38 $ 359
Charge-offs (333) (3) (336) (123) (459)
Recoveries 120 6 126 62 188
Provision for credit losses 276 (2) 274 73 347
Other (a) (11) (1) (12) (1) (13)
Ending balance $ 357 $ 16 $ 373 $ 49 $ 422
Analysis of ending balance of allowance for credit
losses
Collective impairment allowance $ 338 $ 12 $ 350 $ 49 $ 399
Specific impairment allowance 19 4 23 — 23
Ending balance 357 16 373 49 $ 422
Analysis of ending balance of finance receivables
and net investment in operating leases
Collectively evaluated for impairment 59,574 37,113 96,687 25,128
Specifically evaluated for impairment 375 134 509 —
Recorded investment 59,949 37,247 97,196 25,128
Ending balance, net of allowance for credit losses $ 59,592 $ 37,231 $ 96,823 $ 25,079
__________
(a) Primarily represents amounts related to translation adjustments.
2016
Finance Receivables Net Investment in
Consumer Non-Consumer Total Operating Leases Total Allowance
Allowance for credit losses
Beginning balance $ 357 $ 16 $ 373 $ 49 $ 422
Charge-offs (435) (8) (443) (175) (618)
Recoveries 116 6 122 81 203
Provision for credit losses 436 2 438 109 547
Other (a) (5) (1) (6) — (6)
Ending balance $ 469 $ 15 $ 484 $ 64 $ 548
Analysis of ending balance of allowance for credit
losses
Collective impairment allowance $ 450 $ 13 $ 463 $ 64 $ 527
Specific impairment allowance 19 2 21 — 21
Ending balance 469 15 484 64 $ 548
Analysis of ending balance of finance receivables
and net investment in operating leases
Collectively evaluated for impairment 64,971 38,020 102,991 27,273
Specifically evaluated for impairment 367 107 474 —
Recorded investment 65,338 38,127 103,465 27,273
Ending balance, net of allowance for credit losses $ 64,869 $ 38,112 $ 102,981 $ 27,209
__________
(a) Primarily represents amounts related to translation adjustments.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-20
NOTE 7. TRANSFERS OF RECEIVABLES
We securitize finance receivables and net investment in operating leases through a variety of programs using
amortizing, variable funding, and revolving structures. We also sell finance receivables in structured financing
transactions. Due to the similarities between securitization and structured financing, we refer to structured financings as
securitization transactions. Our securitization programs are targeted to institutional investors in both public and private
transactions in capital markets including the United States, Canada, several European countries, Mexico, and China.
We use special purpose entities (“SPEs”) that are considered VIEs for most of our on-balance sheet securitizations.
The SPEs are established for the sole purpose of financing the securitized financial assets. The SPEs are generally
financed through the issuance of notes or commercial paper into the public or private markets or directly with conduits.
We may purchase subordinated notes of the VIEs in addition to the investment we make as the residual interest holder of
the transaction.
We continue to recognize our financial assets related to our sales of receivables when the financial assets are sold to
a consolidated VIE or a consolidated voting interest entity. We derecognize our financial assets when the financial assets
are sold to a non-consolidated entity and we do not maintain control over the financial assets.
Finance Receivables Classification
Finance receivables are accounted for as held for investment (“HFI”) if management has the intent and ability to
hold the receivables for the foreseeable future or until maturity or payoff. The determination of intent and ability to
hold for the foreseeable future is highly judgmental and requires management to make good faith estimates based on
all information available at the time of origination or purchase. If management does not have the intent and ability to
hold the receivables, then the receivables are classified as held for sale (“HFS”).
Each quarter, we make a determination of whether it is probable that finance receivables originated or purchased
during the quarter will be held for the foreseeable future based on historical receivables sale experience, internal
forecasts and budgets, as well as other relevant, reliable information available through the date of evaluation. For
purposes of this determination, we define probable to mean at least 70% likely and, consistent with our budgeting and
forecasting period, we define foreseeable future to mean twelve months. We classify receivables on a receivable-byreceivable
basis. Specific receivables included in off-balance sheet securitizations or whole-loan sale transactions
are usually not identified until the month in which the sale occurs.
Held for Investment
Finance receivables originated or purchased during the quarter for which we determine that it is probable we will
hold for the following twelve months are classified as HFI and recorded at the time of origination or purchase at fair
value and are subsequently reported at amortized cost, net of any allowance for credit losses. Cash flows resulting
from the origination or purchase of and from the sale of receivables that were originally classified as HFI are recorded
as an investing activity since GAAP requires the statement of cash flows presentation to be based on the original
classification of the receivables.
Held for Sale
Finance receivables originated or purchased during the quarter for which we determine that it is not probable we
will hold for the following twelve months are classified as HFS and carried at the lower of cost or fair value. Cash
flows resulting from the origination or purchase and sale of these receivables are recorded as an operating activity.
Once a decision has been made to sell receivables that were originally classified as HFI, the receivables are
reclassified as HFS and carried at the lower of cost or fair value. The valuation adjustment, if applicable, is recorded
in Other income, net to recognize the receivables at the lower of cost or fair value. Once receivables that were
classified as HFS are sold, the receivables are removed from the balance sheet and the fair value adjustment is
incorporated into the book value of receivables for purposes of determining the gain or loss on sale.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-21
NOTE 7. TRANSFERS OF RECEIVABLES (Continued)
On-Balance Sheet Securitization Transactions
We engage in securitization transactions to fund operations and to maintain liquidity. Our securitization transactions
are recorded as asset-backed debt and the associated assets are not derecognized and continue to be included in our
financial statements.
The finance receivables sold for legal purposes and net investment in operating leases included in securitization
transactions are available only for payment of the debt issued by, and other obligations of, the securitization entities that
are parties to those securitization transactions. They are not available to pay our other obligations or the claims of our
other creditors. We hold the right to receive the excess cash flows not needed to pay the debt issued by, and other
obligations of, the securitization entities that are parties to those securitization transactions. The debt is the obligation of
our consolidated securitization entities and not the obligation of Ford Credit or our other subsidiaries.
Most of these securitization transactions utilize VIEs. See Note 8 for additional information concerning VIEs. The
following tables show the assets and debt related to our securitization transactions that were included in our financial
statements at December 31 (in billions):
2015
Cash and Cash
Equivalents
Finance Receivables and Net Investment in
Operating Leases (a)
Related Debt
(c)
Before
Allowance
for Credit
Losses
Allowance for
Credit Losses
After
Allowance
for Credit
Losses
VIE (b)
Retail financing $ 1.4 $ 20.9 $ 0.1 $ 20.8 $ 18.9
Wholesale financing 2.0 25.1 — 25.1 15.3
Finance receivables 3.4 46.0 0.1 45.9 34.2
Net investment in operating leases 0.5 13.3 — 13.3 8.9
Total VIE $ 3.9 $ 59.3 $ 0.1 $ 59.2 $ 43.1
Non-VIE
Retail financing $ 0.4 $ 6.7 $ — $ 6.7 $ 6.1
Wholesale financing — 1.0 — 1.0 0.8
Finance receivables $ 0.4 $ 7.7 $ — $ 7.7 $ 6.9
Net investment in operating leases — — — — —
Total Non-VIE $ 0.4 $ 7.7 $ — $ 7.7 $ 6.9
Total securitization transactions
Retail financing $ 1.8 $ 27.6 $ 0.1 $ 27.5 $ 25.0
Wholesale financing 2.0 26.1 — 26.1 16.1
Finance receivables $ 3.8 $ 53.7 $ 0.1 $ 53.6 $ 41.1
Net investment in operating leases 0.5 13.3 — 13.3 8.9
Total securitization transactions $ 4.3 $ 67.0 $ 0.1 $ 66.9 $ 50.0
__________
(a) Unearned interest supplements and residual support are excluded from securitization transactions.
(b) Includes assets to be used to settle the liabilities of the consolidated VIEs.
(c) Includes unamortized discount and debt issuance costs.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-22
NOTE 7. TRANSFERS OF RECEIVABLES (Continued)
2016
Cash and Cash
Equivalents
Finance Receivables and Net Investment in
Operating Leases (a)
Related Debt
(c)
Before
Allowance
for Credit
Losses
Allowance for
Credit Losses
After
Allowance
for Credit
Losses
VIE (b)
Retail financing $ 1.5 $ 25.9 $ 0.2 $ 25.7 $ 22.7
Wholesale financing 1.0 25.2 — 25.2 13.6
Finance receivables 2.5 51.1 0.2 50.9 36.3
Net investment in operating leases 0.5 11.8 — 11.8 7.4
Total VIE $ 3.0 $ 62.9 $ 0.2 $ 62.7 $ 43.7
Non-VIE
Retail financing $ 0.4 $ 6.6 $ — $ 6.6 $ 6.1
Wholesale financing — 0.8 — 0.8 0.6
Finance receivables 0.4 7.4 — 7.4 6.7
Net investment in operating leases — — — — —
Total Non-VIE $ 0.4 $ 7.4 $ — $ 7.4 $ 6.7
Total securitization transactions
Retail financing $ 1.9 $ 32.5 $ 0.2 $ 32.3 $ 28.8
Wholesale financing 1.0 26.0 — 26.0 14.2
Finance receivables 2.9 58.5 0.2 58.3 43.0
Net investment in operating leases 0.5 11.8 — 11.8 7.4
Total securitization transactions $ 3.4 $ 70.3 $ 0.2 $ 70.1 $ 50.4
__________
(a) Unearned interest supplements and residual support are excluded from securitization transactions.
(b) Includes assets to be used to settle the liabilities of the consolidated VIEs.
(c) Includes unamortized discount and debt issuance costs.
Interest expense related to securitization debt for the years ended December 31 was as follows (in millions):
2014 2015 2016
VIE $ 504 $ 541 $ 671
Non-VIE 91 89 102
Total securitization transactions $ 595 $ 630 $ 773
Certain of our securitization entities may enter into derivative transactions to mitigate interest rate exposure, primarily
resulting from fixed-rate assets securing floating-rate debt and, in certain instances, currency exposure resulting from
assets in one currency and debt in another currency. In certain instances, the counterparty enters into offsetting derivative
transactions with us to mitigate its interest rate risk resulting from derivatives with our securitization entities. These
related derivatives are not the obligations of our securitization entities. See Note 9 for additional information regarding the
accounting for derivatives. Our exposures based on the fair value of derivative instruments with external counterparties
related to securitization programs at December 31 were as follows (in millions):
2015 2016
Derivative
Asset
Derivative
Liability
Derivative
Asset
Derivative
Liability
Derivatives of the VIEs $ 85 $ 19 $ 25 $ 5
Derivatives related to the VIEs 19 29 11 21
Other securitization related derivatives 12 — 21 1
Total exposures related to securitization $ 116 $ 48 $ 57 $ 27
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-23
NOTE 7. TRANSFERS OF RECEIVABLES (Continued)
Derivative expense/(income) related to our securitization transactions for the years ended December 31 was as
follows (in millions):
2014 2015 2016
Derivatives of the VIEs $ (9) $ (32) $ 23
Derivatives related to the VIEs (16) 12 (4)
Other securitization related derivatives 21 18 10
Total derivative expense/(income) related to securitization $ (4) $ (2) $ 29
NOTE 8. VARIABLE INTEREST ENTITIES
A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional
subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A
VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most
significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits
from the entity that could potentially be significant to the VIE. Nearly all of our VIEs are special purpose entities used for
our securitizations.
We have the power to direct the activities of our special purpose entities when we have the ability to exercise
discretion in the servicing of financial assets, issue additional debt, exercise a unilateral call option, add assets to
revolving structures, or control investment decisions.
Assets recognized as a result of consolidating these VIEs do not represent additional assets that could be used to
satisfy claims against our general assets. 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. We
have deemed most of these special purpose entities to be VIEs. The asset-backed securities are backed by finance
receivables and interests in net investments in operating leases. The assets continue to be consolidated by us. We retain
interests in our securitization VIEs, including subordinated securities issued by the VIEs, rights to cash held for the benefit
of the securitization investors, and rights to receive the excess cash flows not needed to pay the debt issued by, and other
obligations of, the securitization entities that are parties to those securitization transactions.
The transactions create and pass along risks to the variable interest holders, depending on the assets securing the
debt and the specific terms of the transactions. We aggregate and analyze the asset-backed securitization transactions
based on the risk profile of the product and the type of funding structure, including:
• Retail financing – consumer credit risk and pre-payment risk;
• Wholesale financing – dealer credit risk and Ford risk, as the receivables owned by the VIEs primarily arise from
the financing provided by us to Ford-franchised dealers; therefore, the collections depend upon the sale of Ford
vehicles; and
• Net investment in operating leases – vehicle residual value risk, consumer credit risk, and pre-payment risk.
As residual interest holder, we are exposed to the underlying residual and credit risk of the collateral and are exposed
to interest rate risk in some transactions. The amount of risk absorbed by our residual interests generally is represented
by and limited to the amount of overcollateralization of the assets securing the debt and any cash reserves.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-24
NOTE 8. VARIABLE INTEREST ENTITIES (Continued)
We have no obligation to repurchase or replace any securitized asset that subsequently becomes delinquent in
payment or otherwise is in default, except when representations and warranties about the eligibility of the securitized
assets are breached, or when certain changes are made to the underlying asset contracts. Securitization investors have
no recourse to us or our other assets and have no right to require us to repurchase the investments. We generally have
no obligation to provide liquidity or contribute cash or additional assets to the VIEs and do not guarantee any assetbacked
securities. We may be required to support the performance of certain securitization transactions, however, by
increasing cash reserves.
VIEs that are exposed to interest rate or currency risk may reduce their risks by entering into derivative transactions.
In certain instances, we have entered into derivative transactions with the counterparty to protect the counterparty from
risks absorbed through its derivative transactions with the VIEs.
Although not contractually required, we regularly support our wholesale securitization programs by repurchasing
receivables of a dealer from a VIE when the dealer’s performance is at risk, which transfers the corresponding risk of loss
from the VIE to us. 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 $0 at December 31, 2015 and 2016, and ranged from $0 to $72 million during 2015 and $0 to $12 million during
2016.
See Note 7 for additional information on the financial position and financial performance of our VIEs and Note 9 for
additional information regarding derivatives.
VIEs of Which We Are Not the Primary Beneficiary
We have an investment in Forso Nordic AB, a joint venture determined to be a VIE of which we are not the primary
beneficiary. The joint venture provides retail and dealer financing in its local markets and is financed by external debt and
additional subordinated debt provided by the joint venture partner. The operating agreement indicates that the power to
direct economically significant activities is shared with the joint venture partner, and the obligation to absorb losses or right
to receive benefits resides primarily with the joint venture partner. Our investment in the joint venture is accounted for as
an equity method investment and is included in Other assets. Our maximum exposure to any potential losses associated
with this VIE is limited to our equity investment and amounted to $66 million and $68 million at December 31, 2015 and
2016, respectively.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-25
NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, our operations are exposed to global market risks, including the effect of changes in
interest rates and foreign currency exchange rates. To manage these risks, we enter into highly effective derivative
contracts:
• Interest rate contracts, including swaps, that are used to manage the effects of interest rate fluctuations;
• Foreign currency exchange contracts, including forwards, that are used to manage foreign exchange exposure;
and
• Cross-currency interest rate swap contracts that are used to manage foreign currency and interest rate exposures
on foreign-denominated debt.
We review our hedging program, derivative positions, and overall risk management strategy on a regular basis.
Derivative Financial Instruments and Hedge Accounting. Derivative assets and derivative liabilities are recorded in
Derivative financial instruments on our balance sheet at fair value and presented on a gross basis.
Our derivatives are over-the-counter customized derivative transactions and are not exchange traded. We estimate
the fair value of these instruments using industry-standard valuation models such as a discounted cash flow. 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 nonperformance risk. The adjustment reflects the
full credit default swap (“CDS”) spread applied to a net exposure, by counterparty, considering the master netting
agreements and any posted collateral. 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.
We have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging
relationships are evaluated for effectiveness using regression analysis at the time they are designated and throughout the
hedge period. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting.
Fair Value Hedges. We use derivatives to reduce the risk of changes in the fair value of debt. We have designated
certain receive-fixed, pay-float interest rate swaps as fair value hedges of fixed-rate debt. The risk being hedged is the
risk of changes in the fair value of the hedged debt attributable to changes in the benchmark interest rate. If the hedge
relationship is deemed to be highly effective, we record the changes in the fair value of the hedged debt related to the risk
being hedged in Debt with the offset in Other income, net. The change in fair value of the related derivative (excluding
accrued interest) also is recorded in Other income, net. Net interest settlements and accruals on fair value hedges are
excluded from the assessment of hedge effectiveness and are reported in Interest expense. The cash flows associated
with fair value hedges are reported in Net cash provided by/(used in) operating activities in our statement of cash flows.
When a fair value hedge is de-designated, or when the derivative is terminated before maturity, the fair value
adjustment to the hedged debt continues to be reported as part of the carrying value of the debt and is amortized over its
remaining life.
Derivatives Not Designated as Hedging Instruments. We report net interest settlements and accruals and changes in
the fair value of interest rate swaps not designated as hedging instruments in Other income, net. Foreign currency
revaluation on accrued interest along with gains and losses on foreign exchange contracts and cross currency interest
rate swaps are reported in Other income, net. Cash flows associated with non-designated or de-designated derivatives
are reported in Net cash provided by/(used in) investing activities in our statement of cash flows.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-26
NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Income Effect of Derivative Financial Instruments
The gains/(losses), by hedge designation, recorded in income for the years ended December 31 were as follows (in
millions):
2014 2015 2016
Fair value hedges
Interest rate contracts
Net interest settlements and accruals excluded from the assessment of hedge effectiveness $ 304 $ 370 $ 367
Ineffectiveness (a) 20 3 4
Derivatives not designated as hedging instruments
Interest rate contracts (41) (58) (9)
Foreign currency exchange contracts (b) 68 66 179
Cross-currency interest rate swap contracts 161 100 398
Total $ 512 $ 481 $ 939
__________
(a) For 2014, 2015, and 2016, hedge ineffectiveness reflects the net change in fair value on derivatives of $407 million gain, $72 million gain, and
$120 million loss, respectively, and change in value on hedged debt attributable to the change in benchmark interest rates of $387 million loss,
$69 million loss, and $124 million gain, respectively.
(b) The gains related to forward contracts between Ford Credit and an affiliated company were $68 million, $66 million, and $210 million for the years
ended December 31, 2014, 2015, and 2016, respectively.
Balance Sheet Effect of Derivative Financial Instruments
Derivative assets and liabilities are recorded on the balance sheet at fair value and are presented on a gross basis.
The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the parties and
are not a direct measure of our financial exposure. We also enter into master agreements with counterparties that may
allow for netting of exposure in the event of default or breach of the counterparty agreement.
The fair value of our derivative instruments and the associated notional amounts, presented gross, at December 31
were as follows (in millions):
2015 2016
Notional
Fair Value
of Assets
Fair Value
of
Liabilities Notional
Fair Value
of Assets
Fair Value
of
Liabilities
Fair value hedges
Interest rate contracts $ 28,964 $ 670 $ 16 $ 33,175 $ 487 $ 80
Derivatives not designated as hedging instruments
Interest rate contracts 62,638 159 112 61,689 156 74
Foreign currency exchange contracts (a) 1,713 22 4 1,791 24 4
Cross-currency interest rate swap contracts 3,137 73 111 3,201 242 8
Total derivative financial instruments, gross (b) (c) $ 96,452 924 243 $ 99,856 909 166
__________
(a) Includes forward contracts between Ford Credit and an affiliated company.
(b) As of December 31, 2015 and 2016, the net obligation to return cash collateral was $0 and $3 million, respectively.
(c) At December 31, 2015 and 2016, the fair value of derivative assets and liabilities available for counterparty netting was $167 million and
$113 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-27
NOTE 10. OTHER ASSETS AND OTHER LIABILITIES AND DEFERRED INCOME
Other assets and other liabilities and deferred income consist of various balance sheet items that are combined for
financial statement presentation due to their respective materiality compared with other individual asset and liability items.
Other assets at December 31 were as follows (in millions):
2015 2016
Accrued interest and other non-finance receivables $ 763 $ 889
Collateral held for resale, at net realizable value 498 621
Prepaid reinsurance premiums and other reinsurance recoverables 472 546
Deferred charges – income taxes 135 205
Property and equipment, net of accumulated depreciation (a) 142 156
Investment in non-consolidated affiliates 133 153
Deferred charges 63 122
Restricted cash (b) 56 108
Other 24 22
Total other assets $ 2,286 $ 2,822
__________
(a) Accumulated depreciation was $335 million and $347 million at December 31, 2015 and 2016, respectively.
(b) Restricted cash primarily includes cash held to meet certain local governmental and regulatory reserve requirements and cash held under the terms
of certain contractual agreements. Restricted cash does not include required minimum balances or cash securing debt issued through
securitization transactions.
Other liabilities and deferred income at December 31 were as follows (in millions):
2015 2016
Interest payable $ 553 $ 661
Unearned insurance premiums 484 556
Tax related payables to Ford and affiliated companies 105 96
Unrecognized tax benefits 75 65
Other 448 619
Total other liabilities and deferred income $ 1,665 $ 1,997
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-28
NOTE 11. DEBT AND COMMITMENTS
We have a commercial paper program with qualified institutional investors. We also obtain other short-term funding
from the issuance of demand notes to retail investors through our floating rate demand notes program. We have certain
securitization programs that issue short-term asset-backed debt securities that are sold to institutional investors. Bank
borrowings by several of our international affiliates in the ordinary course of business are an additional source of shortterm
funding. We obtain long-term debt funding through the issuance of a variety of unsecured and asset-backed debt
securities in the U.S. and international capital markets.
Asset-backed debt issued in securitizations is the obligation of the consolidated securitization entity that issued the
debt and is payable only out of collections on the underlying securitized assets and related enhancements. This assetbacked
debt is not the obligation of Ford Credit or our other subsidiaries.
Debt is recorded on our balance sheet at par value adjusted for unamortized discount or premium, unamortized
issuance costs, and adjustments related to designated fair value hedges (see Note 9 for additional information). Debt due
within one year at issuance is classified as short-term. Debt due after one year at issuance is classified as long-term.
Discounts, premiums, and costs directly related to the issuance of debt are capitalized and amortized over the life of the
debt or to the put date and are recorded in Interest expense using the effective interest method. Gains and losses on the
extinguishment of debt are recorded in Other income, net.
Debt outstanding and interest rates at December 31 were as follows (in millions):
Interest Rates
Debt Average Contractual Average Effective
2015 2016 2015 2016 2015 2016
Short-term debt
Unsecured debt
Floating rate demand notes $ 5,926 $ 5,986
Commercial paper 1,722 4,507
Other short-term debt 2,708 3,803
Asset-backed debt 1,855 1,063
Total short-term debt 12,211 15,359 1.6% 2.3% 1.6% 2.3%
Long-term debt
Unsecured debt
Notes payable within one year 10,254 12,369
Notes payable after one year 48,672 49,308
Asset-backed debt
Notes payable within one year 18,855 19,286
Notes payable after one year 29,390 30,112
Unamortized discount (25) (8)
Unamortized issuance costs (214) (212)
Fair value adjustments 458 278
Total long-term debt 107,390 111,133 2.3% 2.4% 2.4% 2.5%
Total debt $ 119,601 $ 126,492 2.2% 2.4% 2.3% 2.4%
Fair value of debt $ 120,546 $ 128,001
Interest rate characteristics of debt
payable after one year
Fixed interest rate 54,396 56,684
Variable interest rate (generally based on
LIBOR or other short-term rates) 23,666 22,736
Total payable after one year $ 78,062 $ 79,420
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-29
NOTE 11. DEBT AND COMMITMENTS (Continued)
With the exception of commercial paper, which is issued at a discount, the average contractual rates reflect the stated
contractual interest rate. Average effective rates reflect the average contractual interest rate plus amortization of
discounts, premiums, and issuance fees. Fair value adjustments relate to designated fair value hedges of unsecured
debt.
We measure debt at fair value for purposes of disclosure using quoted prices for our own debt with approximately the
same remaining maturities. Where quoted prices are not available, we estimate fair value using discounted cash flows
and market-based expectations for interest rates, credit risk, and the contractual terms of the debt instruments. For
certain short-term debt with an original maturity date of one year or less, we assume that book value is a reasonable
approximation of the debt’s fair value. The fair value of debt is categorized within Level 2 of the hierarchy.
The fair value of debt reflects interest accrued but not yet paid of $550 million and $658 million at December 31, 2015
and 2016, respectively. Accrued interest is reported in Other liabilities and deferred income for outside debt and Accounts
payable – affiliated companies for debt with affiliated companies. The fair value of debt includes $10.4 billion and
$14.3 billion of short-term debt at December 31, 2015 and 2016, respectively, carried at cost, which approximates fair
value.
Debt with affiliated companies included in the above table at December 31 was as follows (in millions):
2015 2016
Other short-term debt $ 88 $ 29
Notes payable within one year 13 —
Notes payable after one year 83 —
Total debt with affiliated companies $ 184 $ 29
Interest expense on debt with affiliated companies is reported in Interest expense and was $25 million, $19 million,
and $4 million for the years ended December 31, 2014, 2015, and 2016, respectively.
Maturities
Debt maturities at December 31, 2016 were as follows (in millions):
2017 (a) 2018 2019 2020 2021 Thereafter (b) Total
Unsecured debt $ 26,665 $ 12,374 $ 11,135 $ 6,843 $ 9,125 $ 9,831 $ 75,973
Asset-backed debt 20,349 12,129 9,725 4,909 2,299 1,050 50,461
Total 47,014 24,503 20,860 11,752 11,424 10,881 126,434
Unamortized discount (8)
Unamortized issuance costs (212)
Fair value adjustments 278
Total debt $ 126,492
__________
(a) Includes $15,359 million for short-term and $31,655 million for long-term debt.
(b) Includes $9,828 million of unsecured debt maturing between 2022 and 2026 with the remaining balance maturing by 2048.
Committed Asset-Backed Facilities
We and our subsidiaries have entered into agreements with a number of bank-sponsored asset-backed commercial
paper conduits and other financial institutions. Such counterparties are contractually committed, at our option, to
purchase from us eligible retail receivables or to purchase or make advances under asset-backed securities backed by
retail or wholesale finance receivables or operating leases for proceeds of up to $34.6 billion ($18.2 billion of retail
financing, $6.1 billion of wholesale financing, and $10.3 billion of operating leases) at December 31, 2016. These
committed liquidity facilities have varying maturity dates, with $17.5 billion having maturities within the next twelve months
and the remaining balance having maturities through 2018. We plan capacity renewals to protect our global funding
needs, optimize capacity utilization, and maintain sufficient liquidity.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-30
NOTE 11. DEBT AND COMMITMENTS (Continued)
Our ability to obtain funding under these facilities is subject to having a sufficient amount of eligible assets as well as
our ability to obtain interest rate hedging arrangements for certain facilities. At December 31, 2016, $19.9 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.
FCE Bank plc (“FCE”) has pre-positioned retail receivables with the Bank of England which supports access to the
Discount Window Facility. Pre-positioned assets are neither pledged to nor held as collateral by the Bank of England
unless the Discount Window Facility is accessed.
Unsecured Credit Facilities
At December 31, 2016, we and our majority-owned subsidiaries had $5.5 billion of contractually committed unsecured
credit facilities with financial institutions, including the FCE Credit Agreement (as defined below) and the allocation under
Ford’s corporate credit facility. At December 31, 2016, $4.8 billion was available for use.
FCE’s £990 million (equivalent to $1.2 billion at December 31, 2016) syndicated credit facility (the “FCE Credit
Agreement”) matures in 2019. At December 31, 2016, £690 million (equivalent to $850 million) was 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 Ford Credit 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).
Lenders under the Ford corporate credit facility have commitments totaling $13.4 billion, with 75% of the commitments
maturing on April 30, 2021 and 25% of the commitments maturing on April 30, 2019. Ford has allocated $3.0 billion of
commitments, including commitments under a Chinese renminbi sub-facility, to us on an irrevocable and exclusive basis
to support our growth and liquidity. At December 31, 2016, all $3.0 billion was available for use.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-31
NOTE 12. INCOME TAXES
Ford Motor Credit Company LLC is a disregarded entity for United States income tax purposes and Ford’s
consolidated United States federal and state income tax returns include certain of our domestic subsidiaries. In
accordance with our intercompany tax sharing agreement with Ford, United States income tax liabilities or credits are
allocated to us generally on a separate return basis calculated as if we were taxable as a corporation.
The Provision for income taxes for the years ended December 31 was estimated as follows (in millions):
2014 2015 2016
Current
Federal $ (198) $ (454) $ (41)
Non-U.S. 154 161 222
State and local (38) (26) (15)
Total current (82) (319) 166
Deferred
Federal 193 893 284
Non-U.S. (6) 93 1
State and local 44 56 55
Total deferred 231 1,042 340
Provision for income taxes $ 149 $ 723 $ 506
A reconciliation of the Provision for income taxes with the United States statutory tax rate as a percentage of Income
before income taxes for the years ended December 31 is as follows:
2014 2015 2016
U.S. statutory tax rate 35.0% 35.0% 35.0%
Effect of (in percentage points):
Non-U.S. tax rates under U.S. rate (3.0) (3.0) (3.8)
State and local income taxes (0.2) 1.0 1.3
U.S. tax on non-U.S. earnings (a) (21.4) 0.2 (4.9)
Other (2.4) (0.2) (0.7)
Valuation allowance — 1.7 —
Effective tax rate 8.0% 34.7% 26.9%
________
(a) During 2014, we changed our method for measuring currency gains and losses in computing the earnings of our European operations under U.S.
tax law. Implementation of the new method resulted in a reduction of U.S. tax on non-U.S. earnings of approximately $360 million due to realization
of additional foreign tax credits.
At December 31, 2016, $3.2 billion of non-U.S. earnings are considered indefinitely reinvested in operations outside
the United States, for which deferred taxes have not been provided. Repatriation of these earnings in their entirety would
result in a residual U.S. tax liability of about $700 million. Our measure of the amount of non-U.S. earnings considered
indefinitely reinvested in operations outside the United States reflects accumulated earnings determined under U.S. tax
law.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-32
NOTE 12. INCOME TAXES (Continued)
Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary
differences that exist between the financial statement carrying value of assets and liabilities and their respective tax
bases, and net operating loss carryforwards and tax credit carryforwards on a taxing jurisdiction basis. We measure
deferred tax assets and liabilities using enacted tax rates that will apply in the years in which we expect the temporary
differences to be recovered or paid.
Our accounting for deferred tax consequences represents our best estimate of the likely future tax consequences of
events that have been recognized in our financial statements or tax returns and their future probability. In assessing the
need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of
the deferred tax assets. If, based on the weight of available evidence, it is more likely than not that the deferred tax
assets will not be realized, we record a valuation allowance.
The components of deferred tax assets and liabilities at December 31 were as follows (in millions):
2015 2016
Deferred tax assets
Net operating loss carryforwards $ 540 $ 1,207
Provision for credit losses 87 191
Other foreign 75 83
Employee benefit plans 10 34
Foreign tax credits 756 803
Other 280 89
Total gross deferred tax assets 1,748 2,407
Less: Valuation allowance (47) (42)
Total net deferred tax assets 1,701 2,365
Deferred tax liabilities
Leasing transactions 3,338 4,479
Finance receivables 688 594
Other foreign 330 303
Other 18 14
Total deferred tax liabilities 4,374 5,390
Net deferred tax liability $ 2,673 $ 3,025
At December 31, 2016, we have a valuation allowance of $42 million for deferred tax assets related to our Latin
American operations.
In accordance with our intercompany tax sharing agreement with Ford, United States income tax liabilities or credits
are allocated to us, generally on a separate return basis. In this regard, the deferred tax assets related to foreign tax
credits and net operating loss carryforwards represent amounts primarily due from Ford. Under our tax sharing
agreement with Ford, we are generally paid for these assets at the earlier of our use on a separate return basis or their
expiration.
Operating loss carryforwards for tax purposes were $3.6 billion at December 31, 2016, resulting in a deferred tax
asset of $1.2 billion. These losses begin to expire in 2019 with a substantial portion expiring in 2037. Tax benefits of net
operating loss carryforwards and tax credit carryforwards are evaluated on an ongoing basis, including a review of
historical and projected future operating results, the eligible carryforward period, and other circumstances.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-33
NOTE 12. INCOME TAXES (Continued)
In accordance with our intercompany tax sharing agreement with Ford, we earn interest on net tax assets and pay
interest on certain tax liabilities. Interest earned is included in Other income, net while interest expense is included in
Interest expense.
The changes in the unrecognized tax benefits for the years ended December 31 were as follows (in millions):
2014 2015 2016
Beginning balance $ 159 $ 111 $ 91
Increase – tax positions in prior periods 28 9 2
Increase – tax positions in current period 1 1 —
Decrease – tax positions in prior periods (44) (22) (1)
Settlements (33) (8) (12)
Ending balance $ 111 $ 91 $ 80
The amount of unrecognized tax benefits at December 31, 2014, 2015, and 2016 that would impact the effective tax
rate if recognized, was $88 million, $76 million, and $69 million, respectively. We do not believe it is reasonably possible
that the total amounts of unrecognized tax benefits will significantly increase or decrease during the next twelve months.
We have settled our U.S. federal income tax matters related to tax years prior to 2012 in accordance with our
intercompany tax sharing agreement with Ford. The Ford consolidated tax return is currently under examination for the
2012 and 2013 tax years. Examinations by tax authorities have been completed through 2008 in Germany, 2010 in
Canada, and 2014 in the United Kingdom.
We recognize income tax-related penalties in Provision for/(Benefit from) income taxes on our income statement. We
recognize accrued interest expense related to unrecognized tax benefits in jurisdictions where we file tax returns separate
from Ford in Other income, net on our income statement. For the years ended December 31, 2014, 2015, and 2016, we
recorded $13 million in net tax related interest expense, $3 million in net tax related interest income, and $8 million in net
tax related interest income, respectively, in our income statement. At December 31, 2015 and 2016, we recorded a net
payable of $37 million and $11 million, respectively, for tax related interest in Other liabilities and deferred income.
NOTE 13. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
The changes in the balance of Accumulated Other Comprehensive Income/(Loss) (“AOCI”) attributable to Ford Credit
for the years ended December 31 were as follows (in millions):
2014 2015 2016
Foreign currency translation
Beginning balance $ 717 $ 160 $ (607)
Net gain/(loss) on foreign currency translation (547) (767) (283)
Reclassifications from shareholder’s interest (a) (10) — —
Other comprehensive income/(loss) including reclassification adjustments, net of tax (557) (767) (283)
Ending balance $ 160 $ (607) $ (890)
Total AOCI ending balance at December 31 $ 160 $ (607) $ (890)
__________
(a) In 2014, we recorded a foreign currency translation adjustment related to the acquisition of a subsidiary of Ford. This adjustment also increased
Shareholder’s interest and did not impact the Total Shareholder’s interest on our balance sheet.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-34
NOTE 14. INSURANCE
We conduct insurance underwriting operations primarily through The American Road Insurance Company (“TARIC”).
TARIC is a wholly owned subsidiary of Ford Credit operating in the United States and Canada. TARIC provides physical
damage insurance coverage for Ford Credit financed vehicles at dealer locations and Ford and Lincoln vehicles in transit
between final assembly plants and dealer locations. In addition, TARIC provides a variety of other insurance products and
services to Ford and its affiliates, including contractual liability insurance on extended service contracts. TARIC provides
commercial automobile and general liability insurance and surety bonds for Ford in the United States.
Insurance premiums earned are reported net of reinsurance as Insurance premiums earned. These premiums are
earned over their respective policy periods. Physical damage insurance premiums, including premiums on vehicles
financed at wholesale by us, are recognized as income on a monthly basis. Premiums from extended service plan
contracts and other contractual liability coverages are earned over the life of the policy based on historical loss
experience. Commissions and premium taxes are deferred and amortized over the term of the related policies on the
same basis on which premiums are earned.
Reserves for insurance losses and loss adjustment expenses are established based on actuarial estimates and
historical loss development patterns, which represents management’s best estimate. If management believes the
reserves do not reflect all losses due to changes in conditions, or other relevant factors, an adjustment is made based on
management judgment.
Reinsurance activity primarily consists of ceding a majority of the contractual liability insurance business related to
automotive extended service plan contracts for a ceding commission. Commissions on ceded amounts are earned on the
same basis as related premiums. Reinsurance contracts do not relieve TARIC from its obligations to its policyholders.
Failure of reinsurers to honor their obligations could result in losses to TARIC. Therefore, TARIC either directly or
indirectly (via insurance brokers) monitors the underlying business and financial performance of the reinsurers. In
addition, where deemed necessary, TARIC may require collateral or utilize multiple reinsurers to mitigate concentration
risk.
Insurance Assets
Cash, cash equivalents, and marketable securities related to insurance activities at December 31 were as follows
(in millions):
2015 2016
Cash and cash equivalents $ 210 $ 99
Marketable securities 369 475
Total cash, cash equivalents, and marketable securities $ 579 $ 574
TARIC is required by law to maintain deposits with regulatory authorities. These deposited securities totaled
$12 million at December 31, 2015 and 2016 and were included in Marketable securities.
Amounts paid to reinsurers relating to the unexpired portion of the underlying automotive service contracts, and
amounts recoverable from reinsurers on unpaid losses, including incurred but not reported losses are reported in Other
assets. Prepaid reinsurance premiums and other reinsurance recoverables were $472 million and $546 million at
December 31, 2015 and 2016, respectively. This includes amounts ceded to Ford and its affiliates of $176 million and
$91 million at December 31, 2015 and 2016, respectively.
Insurance Liabilities
Other liabilities and deferred income includes unearned insurance premiums of $484 million and $556 million at
December 31, 2015 and 2016, respectively, all of which are from Ford and its affiliates.
The reserve for reported insurance losses and an estimate of unreported insurance losses, based on past experience,
was $8 million and $6 million at December 31, 2015 and 2016, respectively, and was included in Other liabilities and
deferred income.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-35
NOTE 14. INSURANCE (Continued)
Insurance Premiums
Insurance premiums written and earned for the years ended December 31 were as follows (in millions):
2014 2015 2016
Written Earned Written Earned Written Earned
Direct $ 293 $ 230 $ 328 $ 254 $ 371 $ 298
Assumed — — — — — —
Ceded (166) (105) (194) (121) (215) (142)
Net premiums $ 127 $ 125 $ 134 $ 133 $ 156 $ 156
The net premiums earned with Ford and its affiliates were $75 million, $90 million, and $133 million for the years
ended December 31, 2014, 2015, and 2016, respectively.
Insurance Expenses
Insurance underwriting losses and expenses are reported as Insurance expenses. The components of insurance
expenses for the years ended December 31 were as follows (in millions):
2014 2015 2016
Insurance losses $ 115 $ 80 $ 146
Loss adjustment expenses 6 5 5
Reinsurance income and other expenses, net (14) (16) (26)
Insurance expenses $ 107 $ 69 $ 125
Insurance expenses with Ford and its affiliates were $30 million, $36 million, and $55 million for the years ended
December 31, 2014, 2015, and 2016, respectively.
Insurance expenses were reduced by ceded insurance expenses of $68 million, $76 million, and $95 million for the
years ended December 31, 2014, 2015, and 2016, respectively.
NOTE 15. OTHER INCOME, NET
Other income consists of various line items that are combined on the income statement due to their respective
materiality compared with other individual income and expense items.
The amounts included in Other income, net for the years ended December 31 were as follows (in millions):
2014 2015 2016
Gains/(Losses) on derivatives $ 208 $ 110 $ 575
Currency revaluation gains/(losses) (236) (161) (575)
Interest and investment income (a) 53 69 85
Insurance fee income 74 88 90
Other 166 178 155
Total other income, net $ 265 $ 284 $ 330
__________
(a) Includes interest income primarily on notes receivable from affiliated companies of $5 million, $3 million, and $5 million, for December 31, 2014,
2015, and 2016 respectively.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-36
NOTE 16. RETIREMENT BENEFITS
We are a participating employer in certain retirement plans that are sponsored by Ford. As described below, Ford
allocates costs to us under these plans based on the total number of participating or eligible employees at Ford Credit.
Further information about these sponsored plans is available in Ford’s Annual Report on Form 10-K for the year ended
December 31, 2016, filed separately with the Securities and Exchange Commission.
Employee Retirement Plans

Benefits earned under certain Ford-sponsored retirement plans are generally based on an employee’s length of
service, salary, and contributions. The allocation amount can be impacted by key assumptions (e.g., discount rate and
average rate of increase in compensation) that Ford uses in determining its retirement plan obligations.
Retirement plan costs allocated to Ford Credit for our employees participating in the Ford-sponsored defined benefit
plans were $71 million, $86 million, and $125 million for the years ended December 31, 2014, 2015, and 2016,
respectively. Allocated costs for defined contribution and savings plans were $4 million, $4 million, and $5 million for the
years ended December 31, 2014, 2015, and 2016, respectively. All retirement plan costs are charged to Operating
expenses.
Postretirement Health Care and Life Insurance Benefits
Postretirement health care and life insurance benefits are provided under certain Ford plans, which provide benefits to
retired salaried employees in North America. Our employees generally may become eligible for these benefits if they
retire while working for us; however, benefits and eligibility rules may be modified from time to time.
Postretirement health care and life insurance costs allocated to Ford Credit for our employees participating in the
Ford-sponsored plans were $4 million, $4 million, and $3 million for the years ended December 31, 2014, 2015, and 2016,
respectively, and were charged to Operating expenses.
NOTE 17. SEGMENT AND GEOGRAPHIC INFORMATION
We conduct our financing operations directly and indirectly through our subsidiaries and affiliates. We offer
substantially similar products and services throughout many different regions, subject to local legal restrictions and market
conditions. We divide our business segments based on geographic regions: North America (“North America Segment”)
and International (“International Segment”). The North America Segment includes our operations in the United States and
Canada. The International Segment includes our operations in all other countries in which we do business directly and
indirectly.
We review our business performance on a managed basis. Receivables for the North America and International
Segments are presented on a managed basis, as it closely approximates the customer’s outstanding balance on the
receivables, which is the basis for earning revenue. Our managed receivables equal net finance receivables and net
investment in operating leases, excluding unearned interest supplements and residual support, allowance for credit
losses, and other (primarily accumulated supplemental depreciation).
We measure the performance of our North America and International Segments primarily on an income before income
taxes basis, after excluding the impact to earnings from gains and losses related to market valuation adjustments to
derivatives primarily related to movements in interest rates. These adjustments are included in unallocated risk
management and are excluded in assessing our North America and International segment performance, because they are
carried out on a centralized basis at the corporate level. We also adjust segment performance to re-allocate interest
expense between the North America and International segments reflecting debt and equity levels proportionate to their
product risk.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-37
NOTE 17. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)
Key operating data for our business segments for the years ended or at December 31 were as follows (in millions):
Unallocated/Eliminations
North
America
Segment
International
Segment
Unallocated
Risk
Management
Adjustment to
Receivables
(a)
Total
Unallocated/
Eliminations Total
2014
Total revenue (b) $ 7,351 $ 1,651 $ (6) $ — $ (6) $ 8,996
Income before income taxes 1,399 461 (6) — (6) 1,854
Other disclosures:
Depreciation on vehicles subject to
operating leases 3,045 43 — — — 3,088
Interest expense 2,010 646 — — — 2,656
Provision for credit losses 157 40 — — — 197
Net finance receivables and net
investment in operating leases 91,021 21,762 — (4,350) (4,350) 108,433
Total assets 96,016 26,092 — — — 122,108
2015
Total revenue (b) $ 8,048 $ 1,650 $ (1) $ — $ (1) $ 9,697
Income before income taxes 1,629 458 (1) — (1) 2,086
Other disclosures:
Depreciation on vehicles subject to
operating leases 3,603 37 — — — 3,640
Interest expense 1,811 605 — — — 2,416
Provision for credit losses 294 53 — — — 347
Net finance receivables and net
investment in operating leases 103,268 23,964 — (5,330) (5,330) 121,902
Total assets 109,339 28,109 — — — 137,448
2016
Total revenue (b) $ 9,190 $ 1,650 $ 69 $ — $ 69 $ 10,909
Income before income taxes 1,408 402 69 — 69 1,879
Other disclosures:
Depreciation on vehicles subject to
operating leases 4,291 38 — — — 4,329
Interest expense 2,171 584 — — — 2,755
Provision for credit losses 476 71 — — — 547
Net finance receivables and net
investment in operating leases 111,663 25,202 — (6,675) (6,675) 130,190
Total assets 116,776 29,313 — — — 146,089
__________
(a) Includes unearned interest supplements and residual support, allowances for credit losses, and other (primarily accumulated supplemental
depreciation).
(b) Represents Total financing revenue and Other revenue.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-38
NOTE 17. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)
Geographic Information
Key data, split geographically into the United States (which is our country of domicile) and other countries or regions
where our major subsidiaries are domiciled, for the years ended or at December 31 were as follows (in millions):
2014 2015 2016
Total revenue (a)
United States $ 6,377 $ 7,070 $ 8,151
Canada 998 981 1,093
Europe 1,041 979 985
All other 580 667 680
Total revenue $ 8,996 $ 9,697 $ 10,909
Income before income taxes
United States $ 1,199 $ 1,298 $ 1,070
Canada 148 247 304
Europe 332 316 259
All other 175 225 246
Total income before income taxes $ 1,854 $ 2,086 $ 1,879
Finance receivables, net and net investment in operating leases
United States $ 76,578 $ 88,237 $ 93,254
Canada 10,449 10,037 12,168
Europe 16,708 18,657 18,485
All other 4,698 4,971 6,283
Total finance receivables, net and net investment in operating leases $ 108,433 $ 121,902 $ 130,190
__________
(a) Represents Total financing revenue and Other revenue.
NOTE 18. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Selected financial data by calendar quarter were as follows (in millions):
First Quarter Second Quarter Third Quarter Fourth Quarter Full Year
2015
Total revenue (a) $ 2,282 $ 2,338 $ 2,478 $ 2,599 $ 9,697
Depreciation on vehicles subject to operating leases (816) (858) (956) (1,010) (3,640)
Interest expense (638) (599) (582) (597) (2,416)
Total financing margin and other revenue 828 881 940 992 3,641
Provision for credit losses 67 72 100 108 347
Net income 306 340 365 352 1,363
2016
Total revenue (a) $ 2,608 $ 2,688 $ 2,796 $ 2,817 $ 10,909
Depreciation on vehicles subject to operating leases (1,014) (1,075) (1,085) (1,155) (4,329)
Interest expense (646) (687) (697) (725) (2,755)
Total financing margin and other revenue 948 926 1,014 937 3,825
Provision for credit losses 128 137 138 144 547
Net income 358 296 386 333 1,373
__________
(a) Represents Total financing revenue, Insurance premiums earned, and Other income, net.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-39
NOTE 19. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies primarily consist of lease commitments, guarantees and indemnifications, and
litigation and claims.
Lease Commitments
We have rental commitments for certain land, buildings, and equipment that expire over various contractual periods.
Minimum non-cancelable operating lease commitments at December 31, 2016 were as follows (in millions):
2017 2018 2019 2020 2021 Thereafter
Minimum rentals on operating leases $ 18 $ 11 $ 8 $ 6 $ 4 $ 8
Rental expense under cancelable and non-cancelable leases of $26 million, $27 million, and $26 million was recorded
in Operating expenses for the years ended December 31, 2014, 2015, and 2016, respectively.
Guarantees and Indemnifications
Guarantees and indemnifications are recorded at fair value at their inception. We regularly review our performance
risk under these arrangements, and in the event it becomes probable we will be required to perform under a guarantee or
indemnity, the amount of probable payment is recorded.
In some cases, we have guaranteed debt and other financial obligations of outside third parties and unconsolidated
affiliates, including Ford. Expiration dates vary, and guarantees will terminate on payment and/or cancellation of the
underlying obligation. A payment by us would be triggered by failure of the guaranteed party to fulfill its obligation covered
by the guarantee. In some circumstances, we are entitled to recover from Ford, an affiliate of Ford, or a third party
amounts paid by us under the guarantee. However, our ability to enforce these rights is sometimes stayed until the
guaranteed party is paid in full, and may be limited in the event of insolvency of the third party or other circumstances.
In the ordinary course of business, we execute contracts involving indemnifications standard in the industry and
indemnifications specific to a transaction. These indemnifications might include and are not limited to claims relating to
any of the following: environmental, tax, and shareholder matters; intellectual property rights; governmental regulations
and employment-related matters; dealer and other commercial contractual relationships; and financial matters, such as
securitizations. Performance under these indemnities generally would be triggered by a breach of terms of the contract or
by a third-party claim. While some of these indemnifications are limited in nature, many of them do not limit potential
payment. Therefore, we are unable to estimate a maximum amount of future payments that could result from claims
made under these unlimited indemnities.

The maximum potential payments under these guarantees and limited indemnities totaled $80 million and $35 million
at December 31, 2015 and 2016, respectively. Of these values, $74 million and $31 million at December 31, 2015 and
2016, respectively, were counter-guaranteed by Ford to us. There were no recorded liabilities related to guarantees and
limited indemnities at December 31, 2015 and 2016.
Litigation and Claims
Various legal actions, proceedings, and claims (generally, “matters”) are pending or may be instituted or asserted
against us. These include but are not limited to matters arising out of governmental regulations; tax matters; alleged
illegal acts resulting in fines or penalties; financial services; employment-related matters; dealer and other contractual
relationships; personal injury matters; investor matters; and financial reporting matters. Certain of the pending legal
actions are, or purport to be, class actions. Some of the matters involve or may involve claims for compensatory, punitive,
or antitrust or other treble damages in very large amounts, sanctions, assessments, or other relief, which, if granted,
would require very large expenditures.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FC-40
NOTE 19. COMMITMENTS AND CONTINGENCIES (Continued)
The extent of our financial exposure to these matters is difficult to estimate. Many matters do not specify a dollar
amount for damages, and many others specify only a jurisdictional minimum. To the extent an amount is asserted, our
historical experience suggests that in most instances the amount asserted is not a reliable indicator of the ultimate
outcome.
We accrue for matters when losses are deemed probable and reasonably estimable. In evaluating matters for accrual
and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar
nature, the specific facts and circumstances asserted, the likelihood that we will prevail, and the severity of any potential
loss. We reevaluate and update our accruals as matters progress over time.
For nearly all of our matters, where our historical experience with similar matters is of limited value (i.e., “non-pattern
matters”), we evaluate the matters primarily based on the individual facts and circumstances. For non-pattern matters, we
evaluate whether there is a reasonable possibility of a material loss in excess of any accrual that can be estimated. It is
reasonably possible that some of the matters for which accruals have not been established could be decided unfavorably
to us and could require us to pay damages or make other expenditures. We do not reasonably expect, based on our
analysis, that such matters would have a material effect on future financial statements for a particular year, although such
an outcome is possible.
As noted, the litigation process is subject to many uncertainties, and the outcome of individual matters is not
predictable with assurance. Our assessments are based on our knowledge and experience, but the ultimate outcome of
any matter could require payment substantially in excess of the amount that we have accrued and/or disclosed.
Exhibit 12
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in millions)
2012 2013 2014 2015 2016
Earnings
Income before income taxes $ 1,697 $ 1,756 $ 1,854 $ 2,086 $ 1,879
Add/(Deduct):
Equity in net income of affiliated companies (33) (23) (29) (32) (33)
Dividends from affiliated companies 36 9 1 1 3
Fixed charges excluding capitalized interest 3,036 2,739 2,665 2,425 2,764
Earnings $ 4,736 $ 4,481 $ 4,491 $ 4,480 $ 4,613
Fixed charges
Interest expense $ 3,027 $ 2,730 $ 2,656 $ 2,416 $ 2,755
Interest portion of rental expense (a) 9 9 9 9 9
Capitalized interest — 1 1 1 1
Total fixed charges $ 3,036 $ 2,740 $ 2,666 $ 2,426 $ 2,765
Ratios
Ratio of earnings to fixed charges 1.6 1.6 1.7 1.8 1.7
__________
(a) One-third of rental expense is deemed to be interest.
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Re: Ford Motor Credit Company LLC Registration Statement Nos. 333-202789 and 333-207323 on Form S-3
We hereby consent to the incorporation by reference in the aforementioned Registration Statements of Ford Motor
Credit Company LLC and its Subsidiaries of our report dated February 9, 2017 relating to the financial statements
and the effectiveness of internal control over financial reporting, which appears in this Form
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Detroit, Michigan
February 9, 2017
Exhibit 24
FORD MOTOR CREDIT COMPANY LLC
Certificate of Secretary
The undersigned, Susan J. Thomas, Secretary of FORD MOTOR CREDIT COMPANY LLC, a Delaware limited
liability company (the “Company”), DOES HEREBY CERTIFY that the following resolutions were duly adopted by
the Board of Directors of the Company by written consent dated as of February 8, 2017, and such resolutions have
not been amended, modified, rescinded, or revoked and are in full force and effect on the date hereof.
WITNESS my hand and the seal of the Company this 9th day of February, 2017.
/s/ Susan J. Thomas
Susan J. Thomas
Secretary
(Company Seal)
Exhibit 24 (Continued)
FORD MOTOR CREDIT COMPANY LLC
RESOLUTIONS
RESOLVED, That preparation of an annual report of the Company on Form for the year ended
December 31, 2016, including exhibits or financial statements and schedules and other documents in connection
therewith (collectively, the “Annual Report”), to be filed with the Securities and Exchange Commission (the
“Commission”) under the Securities Exchange Act of 1934, as amended, be and it hereby is in all respects
authorized and approved; that the directors and appropriate officers of the Company, and each of them, be and
hereby are authorized to sign and execute on their own behalf, or in the name and on behalf of the Company, or
both, as the case may be, such Annual Report, and any and all amendments thereto, with such changes therein as
such directors and officers may deem necessary, appropriate or desirable, as conclusively evidenced by their
execution thereof; and that the appropriate officers of the Company, and each of them, be and hereby are
authorized to cause such Annual Report and any such amendments, so executed, to be filed with the Commission.
RESOLVED, That each officer and director who may be required to sign and execute such Annual Report or
any amendment thereto or document in connection therewith (whether in the name and on behalf of the Company,
or as an officer or director of the Company, or otherwise), be and hereby is authorized to execute a power of
attorney appointing N.J. Falotico, A.S. Galeano, M.B. Harris, K.M. Kjolhede, S.J. Thomas, and D.J. Witten, and
each of them, severally, as his or her true and lawful attorney or attorneys to sign in his or her name, place, and
stead in any such capacity such Annual Report and any and all amendments thereto and documents in connection
therewith, and to file the same with the Commission, each of said attorneys to have power to act with or without the
other, and to have full power and authority to do and perform in the name and on behalf of each of said officers and
directors who shall have executed such power of attorney, every act whatsoever which such attorneys, or any of
them, may deem necessary, appropriate or desirable to be done in connection therewith as fully and to all intents
and purposes as such officers or directors might or could do in person.
Exhibit 24 (Continued)
POWER OF ATTORNEY WITH RESPECT TO
ANNUAL REPORT OF FORD MOTOR CREDIT COMPANY LLC ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2016
KNOW ALL MEN BY THESE PRESENTS that each person that is a director of FORD MOTOR CREDIT
COMPANY LLC, does hereby constitute and appoint N. J. Falotico, A. S. Galeano, M. B. Harris, K. M. Kjolhede,
S. J. Thomas, and D. J. Witten, and each of them, severally, as his or her true and lawful attorney and agent at any
time and from time to time to do any and all acts and things and execute, in his or her name (whether on behalf of
FORD MOTOR CREDIT COMPANY LLC, or as an officer or director of FORD MOTOR CREDIT COMPANY LLC, or
by attesting the seal of FORD MOTOR CREDIT COMPANY LLC, or otherwise) any and all instruments which said
attorney and agent may deem necessary or advisable in order to enable FORD MOTOR CREDIT COMPANY LLC
to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of the Annual Report of FORD MOTOR
CREDIT COMPANY LLC on Form 10-K for the year ended December 31, 2016 and any and all amendments
thereto, as heretofore duly authorized by the Board of Directors of FORD MOTOR CREDIT COMPANY LLC,
including specifically but without limitation thereto, power and authority to sign his or her name (whether on behalf
of FORD MOTOR CREDIT COMPANY LLC, or as an officer or director of FORD MOTOR CREDIT COMPANY LLC,
or by attesting the seal of FORD MOTOR CREDIT COMPANY LLC, or otherwise) to such instruments and to such
Annual Report and to any such amendments to be filed with the Securities and Exchange Commission, or any of
the exhibits or financial statements and schedules filed therewith, and to file the same with the Securities and
Exchange Commission; and such Director does hereby ratify and confirm all that said attorneys and agents, and
each of them, shall do or cause to be done by virtue hereof. Any one of said attorneys and agents shall have, and
may exercise, all the powers hereby conferred.
IN WITNESS WHEREOF, each of the undersigned has signed his or her name hereto as of the 8th day of
February, 2017.
/s/ N. Joy Falotico
N. J. Falotico
/s/ Marion B. Harris
M. B. Harris
/s/ John T. Lawler
J. T. Lawler
/s/ Neil M. Schloss
N. M. Schloss
/s/ Thomas C. Schneider
T. C. Schneider
Exhibit 31.1
CERTIFICATION
I, N. Joy Falotico, certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2016 of Ford Motor Credit
Company LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Dated: February 9, 2017 /s/ N. Joy Falotico
N. Joy Falotico
Chairman of the Board and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Marion B. Harris, certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2016 of Ford Motor Credit
Company LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Dated: February 9, 2017 /s/ Marion B. Harris
Marion B. Harris
Chief Financial Officer and Treasurer
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, N. Joy Falotico, Chairman of the Board and Chief Executive Officer of Ford Motor Credit Company LLC (the
“Company”), hereby certify pursuant to Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and
Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to § 906 of the SarbanesOxley
Act of 2002, that to my knowledge:
1. the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, to which this
statement is furnished as an exhibit (the “Report”), fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: February 9, 2017 /s/ N. Joy Falotico
N. Joy Falotico
Chairman of the Board and Chief Executive Officer
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Marion B. Harris, Chief Financial Officer and Treasurer of Ford Motor Credit Company LLC (the “Company”),
hereby certify pursuant to Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of
Chapter 63 of Title 18 of the United States Code, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002,
that to my knowledge:
1. the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, to which this
statement is furnished as an exhibit (the “Report”), fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: February 9, 2017 /s/ Marion B. Harris
Marion B. Harris
Chief Financial Officer and Treasurer

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