Net Investments in Operating Leases

12 Months Ended

Dec. 31, 2011

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

Revenue from rental payments received on operating leases is recognized on a straight-line basis over the term of the lease. Initial direct costs related to leases are deferred and amortized over the term of the lease as a reduction to revenue. The accrual of revenue on operating leases is discontinued at the earlier of the time an account is determined to be uncollectible, at bankruptcy status notification, or greater than 120 days past due.

We receive interest supplements and residual support payments on certain leasing transactions under agreements with Ford and other affiliates. Income is recognized in a manner that is consistent with revenue recognition on the underlying financing contracts over the periods that the related leases are outstanding. The unamortized balance of unearned interest supplements and residual support payments on operating leases are included in Other liabilities and deferred income on the balance sheet.

Depreciation expense on vehicles subject to operating leases is provided 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 (including residual value support payments from Ford) 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.

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 4. NET INVESTMENT IN OPERATING LEASES (Continued)

Net investment in operating leases at December 31 was as follows (in millions):



	2011			2010
Vehicles, at cost, including initial direct costs	$	13,545		$	14,046
Less: Accumulated depreciation	(2,407		)	(4,003		)
Net investment in operating leases before allowance for credit losses (a)	11,138			10,043
Less: Allowance for credit losses	(40		)	(87		)
Net investment in operating leases	$	11,098		$	9,956

(a)

At December 31, 2011 and 2010, includes net investment in operating leases of $6.4 billion and $6.2 billion, respectively, that have been included in securitization transactions but continue to be included in our consolidated financial statements. These net investment in operating leases are available only for payment of the debt and other obligations issued or arising in the securitization transactions; they are not available to pay our other obligations or the claims of our other creditors until the associated debt or other obligations are satisfied. See Note 6 for additional information.

The amounts contractually due for minimum rentals on operating leases at December 31, 2011 were as follows (in millions):



	2012		2013		2014		2015		2016
Minimum rentals on operating leases	$	1,450	$	1,358	$	1,129	$	199	$	2

- Definition

The entire disclosure for operating leases of a lessor. This may inlcude a general description of lessor's leasing arrangements for operating leases, including the basis on which contingent rental payments are determined, the existence and terms of renewal or purchase options and escalation clauses, restrictions imposed by lease arrangements, such as those concerning dividends, additional debt, and further leasing, rent holidays, rent concessions, or leasehold improvement incentives and unusual provisions or conditions.

+ References+ Details