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Ford Motor Company Annual Report 2005 76 Ford Motor Company Annual Report 2005 77
Notes to the Financial Statements
NOTE 13. SALES OF RECEIVABLES — FINANCIAL SERVICES SECTOR (Continued)
On-Balance Sheet Securitization Special Purpose Entities
At December 31, 2005 and 2004, about $44.7 billion and $16.9 billion, respectively, of finance receivables have been sold for
legal purposes to consolidated securitization SPEs. In addition, at December 31, 2005 and 2004, interests in operating leases and
the related vehicles of about $6.5 billion and $2.5 billion, respectively, have been transferred for legal purposes to consolidated
securitization SPEs. These receivables and interests in operating leases and the related vehicles are only for repayment of debt
issued by those entities, and to pay other securitization investors and other participants; they are not available to pay our other
obligations or the claims of our other creditors. At December 31, 2005 and 2004, associated debt of $39.8 billion and
$16.5 billion, respectively, was issued by the SPEs and includes both asset-backed commercial paper and notes payable out of
collections on these receivables and interests in operating leases and the related vehicles. This debt is the legal obligation of the
SPEs, but for financial statement reporting purposes is reported as debt on our balance sheet.
NOTE 14. ALLOWANCE FOR CREDIT LOSSES — FINANCIAL SERVICES SECTOR
The allowance for credit losses is our estimate of the credit losses related to impaired receivables and operating leases at the
date of the financial statements. This allowance is based on factors including historical credit loss trends, the credit quality of our
present portfolio, trends in historical and projected used vehicle values and general economic measures. Additions to the
allowance for credit losses are made by recording charges to the provision for credit losses on our statement of income. Finance
receivables and lease investments 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 borrower or
lessee, the value of the collateral, recourse to guarantors and other factors. Recoveries on finance receivables and lease
investments previously charged off as uncollectible are credited to the allowance for credit losses.
The allowance for credit losses is included in Finance receivables, net and Net investment in operating leases. Changes in the
allowance for credit losses for finance receivables, investment in direct financing leases and investment in operating leases were as
follows (in millions):
2005 2004 2003
Beginning balance..................................................................................................................................................... $ 2,471 $ 2,962 $ 3,054
Provision for credit losses....................................................................................................................................... 167 923 1,928
Total charge-offs and recoveries
Charge-offs ........................................................................................................................................................... (1,184) (1,843) (2,409)
Recoveries............................................................................................................................................................. 478 477 475
Net charge-offs ................................................................................................................................................... (706) (1,366) (1,934)
Other changes, principally amounts related to finance receivables sold and translation adjustments .................. (338) (48) (86)
Ending balance .......................................................................................................................................................... $ 1,594 $ 2,471 $ 2,962