Ford 2003 Annual Report Download - page 76

74 FORD MOTOR COMPANY
NOTES TO FINANCIAL STATEMENTS
WARRANTY AND ADDITIONAL SERVICE ACTIONS
Estimated expenses related to contractual product warranties and additional service actions are accrued at the time vehicles are
sold to dealers. Estimates are established using historical information on the nature, frequency, and average cost of warranty
claims. Additional service actions include costs related to product recalls and other service actions outside the contractual
warranty coverage. Fees or premiums received for the issuance of extended service plans are recognized in income over the
contract period in proportion to the costs expected to be incurred in performing services under the contract.
SELECTED OTHER COSTS
Freight costs are accrued at the time of sale and are included in cost of sales. Advertising and engineering, research and devel-
opment costs are expensed as incurred and were as follows (in billions):
2003 2002 2001
Advertising $ 2.7 $ 2.9 $ 3.1
Engineering, research and development 7.5 7.7 7.3
SALE OF RECEIVABLES
Ford Credit sells finance receivables to special purpose entities in securitization transactions. The receivables are removed
from our balance sheet at the time they are sold. Sales and transfers that do not meet the criteria for surrender of control are
accounted for as borrowings. Receivables are considered sold when the receivables are transferred beyond the reach of our
creditors, the transferee has the right to pledge or exchange the assets and we have surrendered control over the rights and
obligations of the receivables.
Gains or losses from the sale of finance receivables are recognized in the period the sale occurs based on the relative fair value
of the portion sold and the portion allocated to retained interests. The retained interests are recorded at fair value estimated by
discounting future cash flows using a rate that reflects the credit, interest and prepayment risks associated with similar types of
instruments. Changes in fair value are recorded, net of tax, as Accumulated other comprehensive income/(loss), a component
of stockholders’ equity.
FOREIGN CURRENCY TRANSLATION
Results of operations and cash flows of foreign subsidiaries are, in most cases, translated to U.S. dollars at average-period
currency exchange rates. Assets and liabilities are translated at end-of-period exchange rates.
Included in the statement of income is the impact of re-measuring assets and liabilities of foreign subsidiaries using U.S. dollars
as their functional currency, gains and losses arising from transactions denominated in a currency other than the functional
currency, and the results of our foreign currency hedging activities (Note 16). The net income effects of these adjustments were
gains of $454 million, and losses of $19 million, and $315 million in 2003, 2002, and 2001 respectively.
Translation adjustments related to foreign subsidiaries using the local currency as their functional currency are generally included
in Accumulated other comprehensive income/(loss), a component of stockholders’ equity. Translation adjustments were a
$2.9 billion increase in 2003, a $2.9 billion increase in 2002 and a $1.1 billion decrease in 2001.
DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Property and equipment are stated at cost and depreciated primarily using the straight-line method over the estimated useful
life of the asset. Special tools placed in service before January 1, 1999 are amortized using an accelerated method over the
estimated life of those tools. Special tools placed in service beginning in 1999 are amortized using the units-of-production
method. Maintenance, repairs, and rearrangement costs are expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
We test for impairment when events and circumstances warrant such a review. We evaluate the carrying value of long-lived
assets for potential impairment on a regional operating business unit basis or at the individual asset level, if held for sale, using
undiscounted after-tax estimated cash flows. An asset group is considered impaired when the anticipated separately identifiable
cash flows from the asset group are less than the carrying value.
STOCK OPTIONS
Effective January 1, 2003, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards
(“SFAS”) No. 123, Accounting for Stock-Based Compensation, for stock-based employee compensation. Under the modified
prospective method of adoption selected by the Company under the provisions of SFAS No. 148, Accounting for Stock-Based
Compensation — Transition and Disclosure, stock-based employee compensation expense recognized in 2003 is the same as
that which would have been recognized had the fair value recognition provisions of SFAS No. 123 been applied to all awards
from its original effective date. Results of prior years have not been restated.
NOTE 1. Accounting Policies (continued)
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