FCJ Ford Motor Credit Company Llc

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-6368

Ford Motor Credit Company LLC

(Exact name of registrant as specified in its charter)

Delaware		38-1612444
(State of organization)		(I.R.S. employer identification no.)
One American Road, Dearborn, Michigan		48126
(Address of principal executive offices)		(Zip code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

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

REDUCED DISCLOSURE FORMAT

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

 

 

EXHIBIT INDEX APPEARS AT PAGE 45

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

For the Periods Ended June 30, 2008 and 2007

(in millions)

		Second Quarter								First Half
		2008				2007				2008				2007
		(Unaudited)								(Unaudited)
Financing revenue
Operating leases		$	1,695			$	1,554			$	3,402			$	3,049
Retail			779				837				1,638				1,696
Interest supplements and other support costs earned from affiliated companies			1,247				1,125				2,493				2,192
Wholesale			438				552				915				1,092
Other			36				43				71				90
Total financing revenue			4,195				4,111				8,519				8,119
Depreciation on vehicles subject to operating leases			(4,090	)			(1,450	)			(5,904	)			(2,925	)
Interest expense			(1,901	)			(2,166	)			(3,893	)			(4,315	)
Net financing margin			(1,796	)			495				(1,278	)			879
Other revenue
Investment and other income related to sales of receivables			48				102				117				211
Insurance premiums earned, net			42				43				82				87
Other income, net			303				42				421				418
Total financing margin and other revenue			(1,403	)			682				(658	)			1,595
Expenses
Operating expenses			379				450				746				1,006
Provision for credit losses (Note 4)			545				82				872				128
Insurance expenses			53				38				72				55
Total expenses			977				570				1,690				1,189
Income/(Loss) before income taxes			(2,380	)			112				(2,348	)			406
Provision for/(Benefit from) income taxes			(945	)			50				(936	)			151
Income/(Loss) before minority interests			(1,435	)			62				(1,412	)			255
Minority interests in net income of subsidiaries			0				0				0				0
Income/(Loss) from continuing operations			(1,435	)			62				(1,412	)			255
Gain on disposal of discontinued operations			8				—				9				—
Net income/(loss)		$	(1,427	)		$	62			$	(1,403	)		$	255

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

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)

		June 30,				December 31,
		2008				2007
		(Unaudited)
ASSETS
Cash and cash equivalents (Note 1)		$	12,673			$	14,137
Marketable securities			7,425				3,155
Finance receivables, net (Note 2)			109,088				111,468
Net investment in operating leases (Note 3)			26,553				29,663
Retained interest in securitized assets			380				653
Notes and accounts receivable from affiliated companies			875				906
Derivative financial instruments (Note 9)			2,148				2,811
Other assets			5,259				6,230
Total assets		$	164,401			$	169,023
LIABILITIES AND SHAREHOLDER’S INTEREST
Liabilities
Accounts payable
Customer deposits, dealer reserves and other		$	1,866			$	1,837
Affiliated companies			1,919				2,308
Total accounts payable			3,785				4,145
Debt (Note 6)			137,519				139,411
Deferred income taxes			3,685				5,380
Derivative financial instruments (Note 9)			1,297				1,376
Other liabilities and deferred income			5,810				5,314
Total liabilities			152,096				155,626
Minority interests in net assets of subsidiaries			0				3
Shareholder’s interest
Shareholder’s interest			5,149				5,149
Accumulated other comprehensive income			2,038				1,730
Retained earnings (Note 7)			5,118				6,515
Total shareholder’s interest			12,305				13,394
Total liabilities and shareholder’s interest		$	164,401			$	169,023

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

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Periods Ended June 30, 2008 and 2007

(in millions)

		First Half
		2008				2007
		(Unaudited)
Cash flows from operating activities
Net income/(loss)		$	(1,403	)		$	255
Income related to discontinued operations			(9	)			—
Adjustments to reconcile net income to net cash provided by operations
Provision for credit losses			872				128
Depreciation and amortization			5,713				3,296
Net gain on sales of finance receivables			—				(5	)
Net change in deferred income taxes			(1,673	)			(538	)
Net change in other assets			2,088				511
Net change in other liabilities			576				(321	)
All other operating activities			293				605
Net cash provided by operating activities			6,457				3,931
Cash flows from investing activities
Purchases of finance receivables (other than wholesale)			(17,920	)			(17,786	)
Collections of finance receivables (other than wholesale)			17,835				16,237
Purchases of operating lease vehicles			(7,403	)			(8,408	)
Liquidations of operating lease vehicles			4,205				4,058
Net change in wholesale receivables			(1,080	)			(752	)
Net change in retained interest in securitized assets			144				199
Net change in notes receivable from affiliated companies			(5	)			(100	)
Proceeds from sales of receivables and retained interests			—				697
Purchases of marketable securities			(9,331	)			(3,797	)
Proceeds from sales and maturities of marketable securities			5,040				11,171
Proceeds from sales of businesses			3,684				—
Net change in derivatives not designated as hedging instruments			741				538
All other investing activities			73				33
Net cash (used in)/provided by investing activities			(4,017	)			2,090
Cash flows from financing activities
Proceeds from issuances of long-term debt			20,544				16,838
Principal payments on long-term debt			(23,127	)			(19,280	)
Change in short-term debt, net			(1,419	)			(1,415	)
All other financing activities			(91	)			(51	)
Net cash used in financing activities			(4,093	)			(3,908	)
Effect of exchange rate changes on cash and cash equivalents			174				2
Total cash flows from continuing operations			(1,479	)			2,115
Cash flows from discontinued operations
Cash flows from discontinued operations provided by operating activities			15				—
Total cash flows from discontinued operations			15				—
Net (decrease)/increase in cash and cash equivalents		$	(1,464	)		$	2,115
Cash and cash equivalents, beginning of period		$	14,137			$	12,331
Change in cash and cash equivalents			(1,464	)			2,115
Cash and cash equivalents, end of period		$	12,673			$	14,446

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

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information, and instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, these unaudited financial statements include all adjustments considered necessary for a fair statement of the results of operations and financial conditions for interim periods for Ford Motor Credit Company LLC, its consolidated subsidiaries and consolidated variable interest entities (“VIEs”) in which Ford Motor Credit Company LLC is the primary beneficiary (collectively referred to herein as “Ford Credit”, “we”, “our” or “us”). Results for interim periods should not be considered indicative of results for any other interim period or for the full year. Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2007 (“2007 10-K Report”). We are an indirect, wholly owned subsidiary of Ford Motor Company (“Ford”).

For the first quarter of 2008, we classified PRIMUS Financial Services Inc. and Primus Finance and Leasing, Inc. as discontinued operations. During the second quarter of 2008, we reclassified these entities as continuing operations, including amounts previously reported in our first quarter 2008 financial statements and related footnotes. These reclassifications were not material to our financial statements and related footnotes. Refer to Note 10 for information about these divestitures.

Finance Receivables and Net Investment in Operating Leases

As of January 1, 2008, to reduce ongoing obligations to us and to be consistent with general industry practice, Ford began paying interest supplements and residual value support to us at the time we purchase or originate eligible contracts from dealers. Finance receivables are reported at their outstanding balance, including origination cost and late charges, net of unearned income and unearned interest supplements received from Ford and other affiliates. At June 30, 2008, the amount of these unearned interest supplements was $1.0 billion. Net investment in operating leases are recorded at cost and the vehicles are depreciated on a straight-line basis over the lease term to the estimated residual value. Unearned interest supplements and residual support payments received from Ford and other affiliates for investments in operating leases are recorded in Other liabilities and deferred income. At June 30, 2008, the amount of these unearned interest supplements and residual support payments was $1.1 billion.

At June 30, 2008, in the United States and Canada, Ford is obligated to pay us $3.7 billion of interest supplements (including supplements related to sold receivables) and about $600 million of residual value support over the terms of the related finance contracts, compared with $5.4 billion of interest supplements and about $900 million of residual value support at December 31, 2007, in each case for contracts purchased or originated prior to January 1, 2008. The interest supplements and residual value support obligations on these contracts will continue to decline as the contracts liquidate.

Cash and Cash Equivalents and Marketable Securities

The cash balances to be used only to support on-balance sheet securitizations were $5.4 billion and $4.7 billion at June 30, 2008 and December 31, 2007, respectively. These balances are generally held by VIEs of which we are the primary beneficiary and are included in Cash and cash equivalents .

We recognized earnings of $94 million and $230 million in the second quarter of 2008 and 2007, respectively, and $236 million and $517 million in the first half of 2008 and 2007, respectively, related to interest and investment income on our cash and cash equivalents and marketable securities. These amounts are included in Other income, net .

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 1. ACCOUNTING POLICIES (Continued)

Asset Impairments

Held-for-Sale and Discontinued Operations . We perform an impairment test on an asset group to be discontinued, held-for-sale, or otherwise disposed of when management has committed to the action and the action is expected to be completed within one year. We estimate fair value to approximate the expected proceeds to be received, less transaction costs, and compare it to the carrying value of the asset group. An impairment charge is recognized when the carrying value exceeds the estimated fair value.

Held-and-Used Long-Lived Assets. We evaluate the carrying value of held-and-used long-lived asset groups for potential impairment when certain triggering events have occurred. When a triggering event occurs, a test for recoverability is performed, 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.

Provision for/(Benefit from) Income Taxes

The provision for/(benefit from) income taxes is computed by applying our estimated annual effective tax rate to year-to-date income/(loss) before taxes.

NOTE 2. FINANCE RECEIVABLES

Net finance receivables at June 30, 2008 and December 31, 2007 were as follows (in millions):

		June 30,				December 31,
		2008				2007
		(Unaudited)
Retail		$	72,092			$	74,203
Wholesale			35,927				34,808
Other			3,352				3,394
Total finance receivables, net of unearned income (a)(b)			111,371				112,405
Less: Unearned interest supplements			(1,017	)			—
Less: Allowance for credit losses			(1,266	)			(937	)
Finance receivables, net		$	109,088			$	111,468

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 3. NET INVESTMENT IN OPERATING LEASES

During the second quarter of 2008, higher fuel prices and the weak economic climate in North America resulted in a pronounced shift in consumer preferences from full-size trucks and traditional sport utility vehicles to smaller, more fuel-efficient vehicles. This shift in consumer preferences combined with a weak economic climate caused a significant reduction in auction values and in particular for used full-size trucks and traditional sport utility vehicles. At the end of the quarter, we completed our quarterly North America operating lease portfolio adequacy study for accumulated depreciation and projected that lease-end residual values would be significantly lower than previously expected for full-size trucks and traditional sport utility vehicles.

As a result of the market factors and our adequacy study results, we tested the operating leases of our North America Segment for recoverability and recorded a pre-tax impairment charge of $2.1 billion in Depreciation on vehicles subject to operating leases representing the amount by which the carrying value of certain vehicle lines in our lease portfolio exceeded the fair value. To reduce the $11.5 billion carrying value of the impaired assets to fair value of $9.4 billion, vehicle cost referenced in the table below was reduced by the $2.1 billion impairment charge and $4.4 billion was reclassified from accumulated depreciation. We continue to depreciate all vehicles subject to operating leases in accordance with our accounting policy. Refer to Note 1 in our 2007 10-K Report for more information on our depreciation accounting policy.

Net investment in operating leases at June 30, 2008 and December 31, 2007 were as follows (in millions):

		June 30,				December 31,
		2008				2007
		(Unaudited)
Vehicles, at cost, including initial direct costs (a)		$	30,922			$	38,000
Less: Accumulated depreciation (a)			(4,142	)			(8,184	)
Less: Allowance for credit losses			(227	)			(153	)
Net investment in operating leases (b)		$	26,553			$	29,663

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 4. ALLOWANCE FOR CREDIT LOSSES

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

		Second Quarter								First Half
		2008				2007				2008				2007
		(Unaudited)								(Unaudited)
Balance, beginning of period		$	1,203			$	1,044			$	1,090			$	1,110
Provision for credit losses			545				82				872				128
Deductions
Charge-offs before recoveries			354				246				692				473
Recoveries			(108	)			(121	)			(217	)			(241	)
Net charge-offs			246				125				475				232
Other changes, principally amounts related to translation adjustments and finance receivables sold			9				(9	)			(6	)			(4	)
Net deductions			255				116				469				228
Balance, end of period		$	1,493			$	1,010			$	1,493			$	1,010

In the second quarter of 2008, we updated our assumptions to reflect higher severities, which increased our allowance for credit losses by about $190 million at June 30, 2008.

NOTE 5. VARIABLE INTEREST ENTITIES

We consolidate VIEs in which we are the primary beneficiary. We use special purpose entities (“SPEs”) that are considered VIEs for most of our on-balance sheet securitizations. The 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 securitized assets. Conversely, these specific securitized assets do not represent additional assets that could be used to satisfy claims against our general assets. Consolidated assets related to these securitizations of $91.1 billion and $82.4 billion are included in our balance sheet at June 30, 2008 and December 31, 2007, respectively. These consolidated assets include $5.3 billion and $4.6 billion of cash and cash equivalents and $85.8 billion and $77.8 billion of finance receivables and beneficial interests in net investment in operating leases at June 30, 2008 and December 31, 2007, respectively.

We have investments in other entities deemed to be VIEs of which we are not the primary beneficiary. The risks and rewards associated with our interests in these entities are based primarily on ownership percentages. Therefore, we do not consolidate these entities and we account for them as equity method investments. Our maximum exposure ($150 million and $76 million at June 30, 2008 and December 31, 2007, respectively) to any potential losses associated with these VIEs is limited to our equity investments and, where applicable, receivables due from the VIEs.

In addition, we sell finance receivables to bank-sponsored asset-backed commercial paper issuers that are SPEs of the sponsor bank; these SPEs are not consolidated by us. All of these sales constitute sales for legal purposes, but some of the sales do not satisfy the requirements for accounting sale treatment. The outstanding balance of these finance receivables was approximately $2.6 billion and $3.4 billion at June 30, 2008 and December 31, 2007, respectively.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 6. DEBT

At June 30, 2008 and December 31, 2007, debt was as follows (in millions):

		Interest Rates
		Average								Weighted-
		Contractual (a)								Average (b)								June 30,				December 31,
		2008				2007				2008				2007				2008				2007
																		(Unaudited)
Short-term debt
Asset-backed commercial paper (c)			3.2	%			5.3	%										$	14,213			$	13,518
Other asset-backed short-term debt (c)			5.3	%			5.5	%											4,843				6,196
Ford Interest Advantage (d)			3.7	%			5.6	%											4,855				5,408
Unsecured commercial paper			8.4	%			7.5	%											460				526
Other short-term debt (e)			6.7	%			6.7	%											1,889				1,446
Total short-term debt			4.0	%			5.5	%			4.2	%			5.7	%			26,260				27,094
Long-term debt
Senior indebtedness
Notes payable within one year																			12,101				12,600
Notes payable after one year (f)																			43,572				50,296
Unamortized discount																			(81	)			(86	)
Asset-backed debt (c)
Notes payable within one year																			22,226				20,121
Notes payable after one year																			33,441				29,386
Total long-term debt (g)			5.8	%			6.5	%			5.6	%			6.3	%			111,259				112,317
Total debt			5.5	%			6.3	%			5.4	%			6.2	%		$	137,519			$	139,411

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 7. RETAINED EARNINGS AND COMPREHENSIVE INCOME

Retained Earnings

The following table summarizes earnings retained for use in the business for the periods ended June 30 (in millions):

		Second Quarter								First Half
		2008				2007				2008				2007
		(Unaudited)								(Unaudited)
Retained earnings, beginning balance		$	6,545			$	5,933			$	6,515			$	5,791
Adjustment for adoption of SFAS No. 159 (a)			—				—				6				—
Adjustment for adoption of FIN 48 (b)			—				—				—				(51	)
Net income			(1,427	)			62				(1,403	)			255
Retained earnings, ending balance		$	5,118			$	5,995			$	5,118			$	5,995

Comprehensive Income

The following table summarizes comprehensive income for the periods ended June 30 (in millions):

		Second Quarter								First Half
		2008				2007				2008				2007
		(Unaudited)								(Unaudited)
Net income/(loss)		$	(1,427	)		$	62			$	(1,403	)		$	255
Other comprehensive income/(loss)
Foreign currency translation			46				384				334				449
Change in value of retained interest in securitized assets			(6	)			12				(20	)			(2	)
Unrealized loss on marketable securities			—				(5	)			—				(7	)
Less: Reclassification adjustment for (gains)/losses on marketable securities realized in net income			—				1				—				(22	)
Net loss on derivative instruments			—				—				—				(4	)
Less: Reclassification adjustment for gains on derivative instruments realized in net income			—				(4	)			—				(4	)
Adjustment for adoption of SFAS No. 159			—				—				(6	)			—
Total other comprehensive income			40				388				308				410
Total comprehensive income		$	(1,387	)		$	450			$	(1,095	)		$	665

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 8. FAIR VALUE MEASUREMENTS

We adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”), on January 1, 2008. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value should be based on assumptions that market participants would use including a consideration of non-performance risk.

In determining fair value, we use various valuation techniques and, as required by SFAS No. 157, prioritize the use of observable inputs. The availability of observable inputs varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the marketplace and may require management judgment.

We assess the inputs used to measure fair value using a three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves. Level 3 inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in our hierarchy assessment disclosed in the tables below.

Our fair value processes include controls that are designed to ensure that fair values are appropriate. Such controls include model validation, review of key model inputs, analysis of period-over-period fluctuations and reviews by senior management.

The following section describes the valuation methodologies used to measure fair value, key inputs and significant assumptions.

Cash Equivalents — Financial Instruments. We classify highly liquid investments, with a maturity of 90 days or less at the date of purchase, including U.S. Treasury bills, federal agency securities and A-1/P-1 (or higher) rated commercial paper as cash equivalents. Prior to the adoption of SFAS No. 157, we carried cash equivalents at amortized cost, which approximates fair value. Effective January 1, 2008, we measure financial instruments classified as cash equivalents at fair value. We use quoted prices where available to determine fair value for U.S. Treasury notes and industry-standard valuation models using market-based inputs when quoted prices are unavailable, such as for government agency securities and corporate obligations.

Marketable Securities . Our marketable securities portfolios include investments in U.S. government and non-U.S. government securities, corporate obligations and equities and asset-backed securities with a maturity of greater than 90 days at the date of purchase. Where available, including for U.S. Treasury notes and equities, we use quoted market prices to measure fair value. If quoted market prices are not available, such as for government agency securities, asset-backed securities and corporate obligations, prices for similar assets and matrix pricing models are used. In certain cases, where there is limited transparency to valuation inputs, we contact securities dealers and obtain dealer quotes.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 8. FAIR VALUE MEASUREMENTS (Continued)

Concurrent with our adoption of SFAS No. 157, we elected to apply the fair value option under SFAS No. 159 to our marketable securities. SFAS No. 159 permits entities to measure certain financial assets and liabilities at fair value. The fair value option may be elected on an instrument-by-instrument basis and is irrevocable. Unrealized gains and losses on items for which the fair value option has been elected are recognized in earnings at each subsequent reporting date. This election resulted in a cumulative after-tax increase of approximately $6 million to the opening balance of Retained earnings . Prior to the election of SFAS No, 159, we classified our marketable securities as available-for-sale or held-to-maturity. The unrealized gains and losses for available-for-sale securities were recorded in Accumulated other comprehensive income and the unrealized gains and losses for held-to-maturity securities were not recognized.

Derivative Financial Instruments . As part of our risk management strategy we enter into derivative transactions to mitigate exposures. Our derivative instruments include interest rate swaps, currency swaps and currency forwards. Our derivatives are not exchange-traded and are over-the-counter customized derivative transactions. Substantially all of our derivative exposures are with counterparties that have long-term credit ratings of single-A or better.

We estimate the fair value of our derivatives using industry standard valuation models. These models project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates, foreign exchange rates and the contractual terms of the derivative instruments.

We include an adjustment for non-performance risk in the recognized measure of fair value of derivative instruments.  The adjustment reflects the full credit default spread (“CDS”) applied to a net exposure by counterparty.  We use our counterparty’s CDS when we are in a net asset position and our own CDS when we are in a net liability position.  At June 30, 2008, our derivative assets were reduced by $31 million and our derivative liabilities were reduced by $80 million.  These adjustments resulted in increased pre-tax earnings of $49 million recorded to Other income, net .  At March 31, 2008, we measured the fair value of our derivative assets and liabilities by discounting the cash flows using LIBOR, but without a quantitative adjustment for non-performance risk beyond that which is implied by LIBOR.  The $49 million second quarter adjustment included a $41 million cumulative adjustment to correct the March 31, 2008 derivative valuation to reflect non-performance risk.  The impact on our previously-issued first quarter 2008 financial statements was not material and there is no impact to previous annual periods.

In certain cases, market data is not available and we use management judgment to develop assumptions which are used to determine fair value. This includes situations where there is illiquidity for a particular currency or for longer-dated instruments. For longer-dated instruments in which observable interest rates or foreign exchange rates are not available for all periods through maturity, we hold the last available data point constant through maturity.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 8. FAIR VALUE MEASUREMENTS (Continued)

Retained Interest in Securitized Assets. We retain certain interests in receivables sold in off-balance sheet securitization transactions including residual interest in securitizations and restricted cash. We estimate the fair value of retained interests using internal valuation models, market inputs and our own assumptions. The three key inputs that affect the valuation of the residual interest cash flows include credit losses, prepayment speed and the discount rate. The fair value of residual interest is estimated based on the present value of monthly collections on the sold finance receivables in excess of amounts needed for payment of the debt and other obligations issued or arising in the securitization transactions. The fair value of the residual interest in securitizations and the cash reserve account is determined using a discounted cash flow analysis.

The following table summarizes the fair values of financial instruments measured at fair value on a recurring basis at June 30, 2008 (in millions):

		Items Measured at Fair Value on a Recurring Basis
		Quoted Price in				Significant
		Active Markets				Other				Significant
		for Identical				Observable				Unobservable				Balance as of
		Assets				Inputs				Inputs				June 30,
		(Level 1)				(Level 2)				(Level 3)				2008
		(Unaudited)
Assets
Cash equivalents — financial instruments (a)(b)		$	—			$	2,367			$	—			$	2,367
Marketable securities (a)			809				6,616				—				7,425
Derivative financial instruments			—				1,691				457				2,148
Retained interest in securitized assets			—				—				380				380
Total assets at fair value		$	809			$	10,674			$	837			$	12,320
Liabilities
Derivative financial instruments		$	—			$	842			$	455			$	1,297
Total liabilities at fair value		$	—			$	842			$	455			$	1,297

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 8. FAIR VALUE MEASUREMENTS (Continued)

The following table summarizes the changes in Level 3 financial instruments measured at fair value on a recurring basis for the period ended June 30, 2008 (in millions):

		Fair Value Measurements Using Significant Unobservable Inputs
																						Change in
																						Unrealized
		Fair Value at				Total Realized								Net Transfers				Fair Value at				Gains/(Losses)
		January 1,				/Unrealized				Net Purchases/				Into/(Out of)				June 30,				on Instruments
		2008				Gains/(Losses)				(Settlements)				Level 3				2008				Still Held (a)
		(Unaudited)
Derivative financial instruments, net (b)		$	(30	)		$	17			$	1			$	14			$	2			$	6
Retained interest in securitized assets (c)			653				47				(320	)			—				380				(16	)
Total Level 3 fair value		$	623			$	64			$	(319	)		$	14			$	382			$	(10	)

The following table summarizes the fair values of items measured at fair value on a nonrecurring basis at June 30, 2008 (in millions):

Items Measured at Fair Value on a Nonrecurring Basis

Quoted Price in

Significant

Active Markets

Other

Significant

for Identical

Observable

Unobservable

Balance as of

Assets

Inputs

Inputs

June 30,

Total

(Level 1)

(Level 2)

(Level 3)

2008

Gains/(Losses)

(Unaudited)

Net investment in operating leases (a)

$

—

$

—

$

9,414

$

9,414

$

(2,086

)

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

We are exposed to interest rate changes and foreign currency exchange rate fluctuations in the normal course of business. As part of our risk management strategy we use various derivatives, including interest rate swaps, currency swaps and currency forward contracts to mitigate our risk exposure to interest rates and currency exchange rates. We have elected to apply hedge accounting to certain receive-fixed, pay-float interest rate swaps designated as fair value hedges of fixed-rate debt. The risk being hedged is the risk of changes in fair value of the hedged item attributable to changes in the benchmark interest rate. Hedges that receive designated hedge accounting treatment are documented and evaluated for effectiveness at the time they are designated as well as throughout the hedge period. We use regression analysis to assess fair value hedge effectiveness under the “long-haul” method. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting. For both of these, the mark to fair value is reported currently through earnings. Refer to our 2007 10-K Report for a more detailed description of our derivative financial instruments and hedge accounting designations.

Income Statement Effect of Derivative Financial Instruments

The following table summarizes the estimated pre-tax gain/(loss) for each type of hedge designation (in millions):

		Second Quarter								First Half								Income Statement
		2008				2007				2008				2007				Classification
		(Unaudited)								(Unaudited)
Fair value hedges
Ineffectiveness		$	(30	)		$	—			$	(43	)		$	—			Other income, net
Net interest settlements and accruals excluded from the assessment of hedge effectiveness			18				—				39				—			Interest expense
Derivatives not designated as hedging instruments
Interest rate swaps			42				(255	)			(46	)			(222	)		Other income, net
Foreign currency swaps and forward contracts (a)			(306	)			(443	)			106				(450	)		Other income, net
Other			(1	)			0				0				0			Other income, net

Balance Sheet Effect of Derivative Financial Instruments

We do not net our position by counterparty for purposes of balance sheet presentation and disclosure. The following table summarizes the estimated fair value of our derivative financial instruments:

		June 30, 2008												December 31, 2007
		(Unaudited)
						Fair				Fair								Fair				Fair
						Value				Value								Value				Value
		Notional				Assets				Liabilities				Notional				Assets				Liabilities
		(in billions)				(in millions)								(in billions)				(in millions)
Fair value hedges		$	5			$	140			$	25			$	—			$	—			$	—
Derivatives not designated as hedging instruments (a)			172				2,008				1,272				181				2,811				1,376
Total derivative financial instruments		$	177			$	2,148			$	1,297			$	181			$	2,811			$	1,376

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 10. DIVESTITURES AND OTHER ACTIONS

International Segment Divestitures

Nordic Operations. During the second quarter of 2008, we completed the creation of a joint venture finance company and transferred the majority of our business and assets from Denmark, Finland, Norway and Sweden into the joint venture. The joint venture will support the sale of Ford vehicles in these markets. As a result of the sale, Finance receivables, net were reduced by approximately $1.7 billion, and we recognized a pre-tax gain of approximately $85 million, net of transaction costs and including $35 million of foreign currency translation adjustments, in Other income, net . We report our ownership interest in the joint venture in Other assets as an equity method investment.

PRIMUS Financial Services Inc . In April 2008, we completed the sale of 96% of our ownership interest in PRIMUS Financial Services Inc., our operation in Japan that offers automotive retail and wholesale financing of Ford and Mazda vehicles. As a result of the sale, Finance receivables, net were reduced by approximately $1.8 billion, Debt was reduced by approximately $252 million, and we recognized a pre-tax gain of approximately $22 million, net of transaction costs and including $28 million of foreign currency translation adjustments, in Other income, net. We report our remaining ownership interest in Other assets as a cost method investment.

Primus Finance and Leasing, Inc . During the second quarter of 2008, we completed the sale of our 60% ownership interest in Primus Finance and Leasing, Inc. (“Primus Philippines”), our operation in the Philippines that offers automotive retail and wholesale financing of Ford and Mazda vehicles. We also completed the sale of our 40% ownership in PFL Holdings, Inc., a holding company in the Philippines that owns the remaining 40% ownership interest in Primus Philippines. As a result of the sale, we recognized a pre-tax gain of approximately $5 million, net of transaction costs and including $1 million of foreign currency translation adjustments, in Other income, net.

North America Segment Divestiture

Triad Financial Corporation. In 2005, we completed the sale of Triad Financial Corporation (“Triad”). Triad specialized in automobile retail installment sales contracts with borrowers who generally would not be expected to qualify, based on their credit worthiness, for traditional financing sources such as those provided by commercial banks or automobile manufacturers’ affiliated finance companies primarily through non-Ford dealerships. In 2005, we recognized a $4 million after-tax gain on disposal of discontinued operations. During the second quarter of 2008 and the first half of 2008, we received additional proceeds primarily based on better than anticipated securitized portfolio performance, pursuant to a contractual agreement entered into at the closing of the sale, and recognized an additional $8 million after-tax gain and an additional $9 million after-tax gain on disposal of discontinued operations, respectively.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 10. DIVESTITURES AND OTHER ACTIONS (Continued)

Business Restructuring — Germany

In 2006, FCE Bank plc (“FCE”) announced a plan to restructure its business in Germany that supports the sales activities of automotive financial services of Ford, Jaguar, Land Rover and Mazda vehicles. The plan included the consolidation of branches into district offices; these actions reduced ongoing costs. The costs associated with the business restructuring were charged to Operating expense s. Total estimated charges accrued through June 30, 2008 are $18 million. In the first half of 2008, we paid $3 million. The restructuring was completed in 2007.

The table below summarizes the pre-tax charges incurred and the related liability for the periods ended June 30 (in millions):

		First Half
		2008				2007
		(Unaudited)
Liability at Beginning of Period		$	7			$	31
(Released)/Accrued During Period			0				(6	)
Paid During Period			(3	)			0
Foreign Currency Translation			1				1
Liability at End of Period		$	5			$	26

Business Restructuring — Spain

In 2007, FCE announced a plan to restructure its business in Spain that supports the sales activities of automotive financial services of Ford, Jaguar, Land Rover, Mazda and Volvo vehicles. The plan includes the consolidation of branches; these actions are expected to reduce ongoing costs. The costs associated with the business restructuring are primarily related to employee separations and were charged to Operating expense s. Total estimated charges accrued through June 30, 2008 are $3 million. In the first half of 2008, we paid $2 million. The restructuring will be completed in 2008.

Employee Separation Actions

In 2007, we recognized pre-tax charges of $45 million in Operating expenses for employee separation actions (excluding costs for retirement plan and postretirement health care and life insurance benefits) announced in 2006 in the United States and in 2007 in non-U.S. locations. In the second quarter of 2008, we released the remaining $2 million of this reserve and no charges were incurred for retirement plan and postretirement health care and life insurance benefits related to these actions. Refer to our 2007 10-K Report for a more detailed description of our employee separation actions.

Profit Maintenance Agreement

In the first quarter of 2008, we received a payment of $109 million under the terms of the profit maintenance agreement between Ford and us. The payment was recorded as an increase in Cash and cash equivalents and Total liabilities . Based on an evaluation of several factors including our present liquidity and leverage ratio, and our forecasted and historical levels of liquidity, leverage, equity, assets, dividends and distributions, and other intercompany obligations, we did not request a payment in the second quarter 2008. First half 2008 Income/(Loss) before income taxes was not impacted by the first or second quarter actions. The profit maintenance agreement can be found in Exhibit 10A of our Annual Report on Form 10-K for the year ended December 31, 2001.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 11. SEGMENT INFORMATION

We divide our business segments based on geographic regions: the North America Segment (includes operations in the United States and Canada) and the International Segment (includes operations in all other countries). We measure the performance of our segments primarily on an income before income taxes basis, after excluding the impact to earnings from gains and losses related to market valuation adjustments from 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 our risk management activities are carried out on a centralized basis at the corporate level, with only certain elements allocated to these segments. The North America and International segments are presented on a managed basis. Managed basis includes Finance receivables, net and Net investment in operating leases reported on our balance sheet, excluding unearned interest supplements related to finance receivables, and receivables we sold in off-balance sheet securitizations and continue to service.

Key operating data for our operating segments for the periods ended June 30 were as follows (in millions):

										Unallocated/Eliminations
																		Effect of
		North								Unallocated				Effect of				Unearned
		America				International				Risk				Sales of				Interest
		Segment				Segment				Management				Receivables				Supplements				Total				Total
										(Unaudited)
Second Quarter 2008
Revenue (a)		$	3,470			$	1,143			$	12			$	(37	)		$	—			$	(25	)		$	4,588
Income
Income/(Loss) before income taxes			(2,606	)			214				12				—				—				12				(2,380	)
Provision for /(Benefit from) income taxes			(1,025	)			75				5				—				—				5				(945	)
Income/(Loss) from continuing operations			(1,581	)			139				7				—				—				7				(1,435	)
Other disclosures
Depreciation on vehicles subject to operating leases			4,020				70				—				—				—				—				4,090
Interest expense			1,298				648				—				(45	)			—				(45	)			1,901
Provision for credit losses			486				59				—				—				—				—				545
Second Quarter 2007
Revenue (a)		$	3,756			$	958			$	(316	)		$	(100	)		$	—			$	(416	)		$	4,298
Income
Income/(Loss) before income taxes			260				168				(316	)			—				—				(316	)			112
Provision for/(Benefit from) income taxes			102				59				(111	)			—				—				(111	)			50
Income/(Loss) from continuing operations			158				109				(205	)			—				—				(205	)			62
Other disclosures
Depreciation on vehicles subject to operating leases			1,373				77				—				—				—				—				1,450
Interest expense			1,709				568				—				(111	)			—				(111	)			2,166
Provision for credit losses			75				7				—				—				—				—				82

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 11. SEGMENT INFORMATION (Continued)

										Unallocated/Eliminations
																		Effect of
		North								Unallocated				Effect of				Unearned
		America				International				Risk				Sales of				Interest
		Segment				Segment				Management				Receivables				Supplements				Total				Total
										(Unaudited)
First Half 2008
Revenue (a)		$	7,195			$	2,176			$	(150	)		$	(82	)		$	—			$	(232	)		$	9,139
Income
Income/(Loss) before income taxes			(2,568	)			370				(150	)			—				—				(150	)			(2,348	)
Provision for /(Benefit from) income taxes			(1,013	)			130				(53	)			—				—				(53	)			(936	)
Income/(Loss) from continuing operations			(1,555	)			240				(97	)			—				—				(97	)			(1,412	)
Other disclosures
Depreciation on vehicles subject to operating leases			5,758				146				—				—				—				—				5,904
Interest expense			2,723				1,280				—				(110	)			—				(110	)			3,893
Provision for credit losses			790				82				—				—				—				—				872
Finance receivables and net investment in operating leases			98,883				40,805				—				(3,030	)			(1,017	)			(4,047	)			135,641
Total assets			121,016				47,053				—				(2,651	)			(1,017	)			(3,668	)			164,401
First Half 2007
Revenue (a)		$	7,507			$	1,902			$	(353	)		$	(221	)		$	—			$	(574	)		$	8,835
Income
Income/(Loss) before income taxes			432				327				(353	)			—				—				(353	)			406
Provision for/(Benefit from) income taxes			160				115				(124	)			—				—				(124	)			151
Income/(Loss) from continuing operations			272				212				(229	)			—				—				(229	)			255
Other disclosures
Depreciation on vehicles subject to operating leases			2,772				153				—				—				—				—				2,925
Interest expense			3,445				1,101				—				(231	)			—				(231	)			4,315
Provision for credit losses			97				31				—				—				—				—				128
Finance receivables and net investment in operating leases			108,942				40,370				2				(9,361	)			—				(9,359	)			139,953
Total assets			129,182				44,769				2				(8,492	)			—				(8,490	)			165,461

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 12. GUARANTEES AND INDEMNIFICATIONS

The fair values of guarantees and indemnifications issued are recorded in the financial statements and are not material. At June 30, 2008, the following guarantees and indemnifications were issued and outstanding:

Guarantees of certain obligations of unconsolidated affiliates and other affiliates . In some cases, we have guaranteed debt and other financial obligations of unconsolidated affiliates, including joint ventures and Ford. Expiration dates vary, and guarantees will terminate on payment and/or cancellation of the obligation. A payment 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 or an affiliate of Ford 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. The maximum potential payments under these guarantees totaled approximately $359 million; of this amount, $152 million was counter-guaranteed by Ford to us. No losses have been recorded for these guarantees.

FCE has also guaranteed obligations of Ford in Romania of which the maximum potential payment of $388 million has been fully collateralized by cash received from Ford Motor Company Limited, a Ford U.K. subsidiary, and is recorded as Debt . The expiration date of the guarantee is August 2009 and could terminate on payment and/or cancellation of the obligation by Ford. A payment to the guaranteed party would be triggered by failure of Ford to fulfill its obligation covered by the guarantee.

Guarantees of obligations to Ford . We have guaranteed $137 million of third-party obligations payable to Ford Brazil. Payment would be triggered in the event of an unfavorable ruling in a certain lawsuit and the failure of the third-parties to repay Ford the obligated amounts. The guarantee will terminate upon the repayment or cancellation of the obligations.

Indemnifications . In the ordinary course of business, we execute contracts involving indemnifications standard in the industry and indemnifications specific to a transaction, such as the sale of a business. These indemnifications might include and are not limited to claims against any of the following: environmental, tax and shareholder matters; intellectual property rights; governmental regulations and employment-related matters; other commercial contractual relationships; and financial matters, such as securitizations. Performance under these indemnities would generally be triggered by a breach of terms of the contract or by a third-party claim. We regularly evaluate the probability of having to incur costs associated with these indemnifications and have accrued for expected losses that are probable. We are party to numerous indemnifications and many of these indemnities do not limit potential payment; therefore, we are unable to estimate a maximum amount of potential future payments that could result from claims made under these indemnities.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Impairment of Net Investment in Operating Leases

During the second quarter of 2008, higher fuel prices and the weak economic climate in North America resulted in a pronounced shift in consumer preferences from full-size trucks and traditional sport utility vehicles to smaller, more fuel-efficient vehicles. This shift in consumer preferences combined with a weak economic climate caused a significant reduction in auction values and in particular for used full-size trucks and traditional sport utility vehicles. At the end of the quarter, we completed our quarterly North America operating lease portfolio adequacy study for accumulated depreciation and projected that lease-end residual values would be significantly lower than previously expected for full-size trucks and traditional sport utility vehicles.

As a result of the market factors and our adequacy study results, we tested the operating leases of our North America Segment for recoverability as of June 30, 2008 and recorded a pre-tax impairment charge of $2.1 billion in Depreciation on vehicles subject to operating leases representing the amount by which the carrying value of certain vehicle lines, primarily full-size trucks and traditional sport utility vehicles, in our lease portfolio exceeded their fair value.

Assumptions Used and Sensitivity Analysis . We estimate the fair value of an asset group based on market prices (i.e., the amount for which the asset could be sold to a third party), when available. When market prices are not available, we estimate the fair value of the asset group using the income approach. The income approach uses discounted cash flow projections. We measured the fair value of our North America operating lease portfolio using the projected cash flow based on the terms of the operating lease contracts. Inherent in these cash flow projections are estimates derived from our quarterly North America operating lease portfolio adequacy study for accumulated depreciation. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods.

Changes in assumptions or estimates can materially affect the determination of fair value of an asset group, and therefore can affect the amount of the impairment. The following are key assumptions we used in making cash flow projections for our operating leases:

•

Auction values — Our projection of the market value of the vehicles when we sell them at the end of the lease;

•

Return volume — Our projection of the number of vehicles that will be returned at lease-end; and

•

Discount rate — Our estimation of the discount rate, reflecting hypothetical market assumptions regarding borrowing rates, credit loss patterns, and residual value risk.

Following this impairment, our total investment in operating leases was $26.6 billion as of June 30, 2008. We estimate that a one percent decrease in the auction value of the impaired vehicles assumed in the impairment testing would have decreased the fair value estimate by about $50 million. A one percentage point increase in the return rate of the impaired vehicles assumed in the impairment testing would have decreased the fair value estimate by about $30 million. A one percentage point increase in the discount rate assumed in the impairment testing would have decreased the fair value estimate by about $100 million. We assess the adequacy of our accumulated depreciation quarterly and will prospectively increase depreciation expense if auction values decline further or return volumes increase. For additional information on accumulated depreciation, refer to the “Critical Accounting Estimates — Accumulated Depreciation on Vehicles Subject to Operating Leases” section of Item 7 of Part II of our 2007 10-K Report. Although, at this time, we do not anticipate additional impairment charges, a significant worsening of the business climate could trigger future impairment testing and would impact the assumptions we use therein, which could result in additional impairments.

On-Balance Sheet Securitizations . About 60% of our net investment in operating leases are included in on-balance sheet private securitizations, and $1.3 billion of the impairment charge is attributable to the assets included in these securitizations. We structured the enhancements in our operating lease securitizations to protect securitization investors against residual and credit losses. We expect that these enhancements will be sufficient to cover projected residual losses that supported the impairment charge.

For additional information on our net investment in operating leases, refer to Note 3 of our Notes to the Financial Statements, and the “On-Balance Sheet Operating Lease Arrangements” section of Item 2.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Second Quarter 2008 Compared with Second Quarter 2007

In the second quarter of 2008, our net loss was $1.4 billion, compared with $62 million net income a year ago. On a pre-tax basis, we incurred a loss of $2.4 billion in the second quarter of 2008, compared with earnings of $112 million a year ago. The decrease in pre-tax earnings primarily reflected the significant decline in used vehicle auction values during the second quarter of 2008. This decline in auction values contributed to:

•

An impairment charge to our North America Segment operating lease portfolio for contracts terminating beginning third quarter of 2008 (about $2.1 billion);

•

Higher depreciation expense for leased vehicles (about $500 million); and

•

A higher provision for credit losses (about $500 million).

These factors were offset partially by:

•

The non-recurrence of net losses related to market valuation adjustments from derivatives (about $300 million);

•

Higher financing margin primarily attributable to lower borrowing costs (about $100 million);

•

A gain related to the sale of approximately half of our ownership interest in our Nordic operations (about $100 million); and

•

Lower expenses primarily reflecting improved operating costs (about $100 million).

In the second quarter of 2008, pre-tax earnings included net gains related to market valuation adjustments from derivatives (unallocated risk management in the table below) of $12 million. In the second quarter of 2007, pre-tax earnings included net losses related to market valuation adjustments from derivatives of $316 million.

Results of our operations by business segment and unallocated risk management for the second quarter of 2008 and 2007 are shown below:

		Second Quarter
										2008
										Over/(Under)
		2008				2007				2007
		(in millions)
Income before income taxes
North America Segment		$	(2,606	)		$	260			$	(2,866	)
International Segment			214				168				46
Unallocated risk management			12				(316	)			328
Income/(Loss) before income taxes			(2,380	)			112				(2,492	)
Provision for/(Benefit from) income taxes, Minority interests in net income of subsidiaries, and Gain on disposal of discontinued operations			(953	)			50				(1,003	)
Net income/(loss)		$	(1,427	)		$	62			$	(1,489	)