Ford 2007 Annual Report Download - page 67

Notes to the Financial Statements
Ford Motor Company | 2007 Annual Report 65
NOTE 2. SUMMARY OF ACCOUNTING POLICIES (Continued)
Sales of Receivables
Ford Credit securitizes finance receivables and net investment in operating leases and sells retail installment sale
contracts in whole-loan sale transactions to fund operations and to maintain liquidity. Most of its securitizations do not
meet the criteria for off-balance sheet treatment. As a result, the securitized assets and associated debt remain on its
balance sheet and no gain or loss is recorded for these transactions.
Ford Credit records its sales of receivables as off-balance sheet when each of the following criteria is met:
• The receivables are isolated from the transferor (i.e., Ford Credit transfers the receivables to bankruptcy-
remote special purpose entities ("SPEs") or other independent entities).
• The receivables are transferred to an entity that has the right to pledge or exchange the assets, or to a
qualifying SPE whose beneficial interest holders have the right to pledge or exchange their beneficial interests.
In its off-balance sheet transactions, Ford Credit generally uses a qualifying SPE or it sells the receivables to
an independent entity. In either case, Ford Credit does not restrict the transferee from pledging or exchanging
the receivables or beneficial interests.
• The transferor does not maintain control over the receivables (i.e., Ford Credit is not permitted to regain
control over the transferred receivables or cause the return of specific receivables, other than through a
"cleanup" call, an optional repurchase of the remaining transferred financial assets at a point where the cost of
servicing the outstanding assets becomes burdensome in relation to the benefits).
For off-balance sheet sales of receivables, gains or losses are recognized in the period in which the sale occurs. Ford
Credit retains certain interests in receivables sold in off-balance sheet securitization transactions. In determining the gain
or loss on each sale of finance receivables, the investment in the sold receivables pool is allocated between the portions
sold and retained based on their relative fair values at the date of sale. Retained interests may include residual interest in
securitizations, restricted cash held for the benefit of securitization investors, and subordinated securities. These interests
are recorded at fair value with unrealized gains recorded, net of tax, as a separate component of Accumulated other
comprehensive income/(loss). Residual interests in securitizations represent 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. Ford Credit does not retain any interests in the whole-loan sale transactions but
continues to service the sold receivables.
In both off-balance sheet securitization transactions and whole-loan sales, Ford Credit also retains the servicing rights
and generally receives a servicing fee. The fee is recognized as collected over the remaining term of the related sold
finance receivables. Ford Credit establishes a servicing asset or liability when the servicing fee does not adequately
compensate for retaining the servicing rights. Interest supplement payments due from affiliates related to receivables sold
in off-balance sheet securitizations or whole-loan sale transactions are recorded, on a present value basis, as a
receivable in Other assets on its balance sheet at the time the receivables are sold. Present value accretion is recognized
in Financial Services revenues.
Depreciation and Amortization
Property and equipment are stated at cost and depreciated primarily using the straight-line method over the estimated
useful life of the asset. Useful lives range from 3 years to 36 years. The estimated useful lives generally are 14.5 years
for machinery and equipment, and 30 years for buildings and land improvements. Maintenance, repairs, and
rearrangement costs are expensed as incurred.
Beginning January 1, 2006, we changed our method of amortization for special tools from an activity-based method
(units-of-production) to a time-based method. The time-based method amortizes the cost of special tools over their
expected useful lives using a straight-line method or, if the production volumes for major product programs associated