Ford 2004 Annual Report Download - page 64

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6 2
NOTES TO THE FINANCIAL STATEMENTS
The table below reconciles the revised presentation of our Consolidated Statement of Cash Flows for the years ended
December 31, 2004, 2003 and 2002 to the prior presentation (in millions):
NOTE 2. SUMMARY OF ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and all highly liquid investments with a maturity of three months or less at the date of purchase, including short-term time
deposits and government agency and corporate obligations, are classified as Cash and cash equivalents.
Revenue Recognition - Automotive Sector
Sales are generally recorded when products are shipped to customers (primarily dealers) and ownership is transferred. Sales to daily
rental car companies with a guaranteed repurchase option are accounted for as operating leases. The lease revenue is recognized
over the term of the lease and a gain or loss on the remaining residual value is recognized when the vehicles are sold at auction. The
carrying value of these vehicles is included in other current assets and, as of December 31, 2004, was $2.9 billion.
Income generated from cash and cash equivalents, investments in marketable securities, loaned securities and other
miscellaneous receivables is reported as Interest income and other non-operating income/(expense), net.
Revenue Recognition - Financial Services Sector
Revenue from finance receivables, including interest, net of certain deferred loan origination costs that are included as a
reduction of financing revenue, is recognized over the term of the receivable using the interest method. Revenue from operating
leases, net of certain deferred origination costs, is recognized on a straight-line basis over the term of the lease. The accrual of
interest on receivables is discontinued at the time a receivable is determined to be uncollectible. Subsequent amounts of interest
collected are recognized in income only if full recovery of the remaining principal is probable. Interest supplements paid by the
Automotive sector are recognized over the term of the receivable or operating lease.
Use of Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the periods reported.
Estimates are used when accounting for certain items such as marketing accruals, warranty costs, employee benefit programs,
etc. Estimates are based on historical experience, where applicable, and other assumptions that management believes are
reasonable under the circumstances. Due to the inherent uncertainty involved in marketing estimates, actual results may differ
from those estimates under different assumptions or conditions.
Marketing Incentives
Automotive marketing incentives, including customer and dealer cash payments and costs for special financing and leasing
programs paid to the Financial Services sector are recognized as revenue reductions and are accrued at the later of the date the
related vehicle sales are recorded or the date the incentive program is both approved and communicated. Costs for marketing
incentives are based on assumptions regarding the number of vehicles that will have a specific incentive applied against them.
NOTE 1. Principles of Presentation and Consolidation (Continued)
2004 2003 2002
Net cash flows from operating activities:
Automotive sector $ 6,998 $ 2,948 $ 3,099
Financial Services sector 15,593 16,486 14,663
Sum of sector operating cash flows (prior presentation) 22,591 19,434 17,762
Reclassification from investing cash flows* 1,923 (2,154) (6,023)
Consolidated net cash flows from operating activities $ 24,514 $ 17,280 $ 11,739
Net cash flows from investing activities:
Automotive sector $ (1,705) $ (2,852) $ (5,741)
Financial Services sector (6,862) 1,404 3,923
Elimination of net intersector investing activity (4,361) (3,708) (1,053)
Sum of sector investing cash flows (prior presentation) (12,928) (5,156) (2,871)
Reclassification to operating cash flows* (1,923) 2,154 6,023
Consolidated net cash flows from investing activities $ (14,851) $ (3,002) $ 3,152
* In addition to vehicles sold by us, the cash flows from wholesale finance receivables being reclassified from investing to operating include financing by Ford Credit
of used and non-Ford vehicles. 100% of cash flows from wholesale finance receivables have been reclassified for consolidated presentation as the portion of these
cash flows from used and non-Ford vehicles are impracticable to separate.