Ford 2005 Annual Report Download - page 64

Notes to the Financial Statements
NOTE 2. SUMMARY OF ACCOUNTING POLICIES (Continued)
Sale of Receivables
Ford Credit sells finance receivables in securitization and whole-loan sales transactions to fund our operations and to maintain
liquidity. In many of our securitization transactions, we surrender control over these assets by selling finance receivables to
securitization special purpose entities (“SPEs”). Securitization entities are a common, required element of securitization
transactions to meet certain legal and transaction requirements that assure that the sold assets have been isolated from our creditors
and us. The securitization entities generally issue interest-bearing securities collateralized by future collections on the sold
receivables.
Receivables are considered sold for accounting purposes 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. If these criteria are satisfied, the receivables are removed from our balance sheet at the time they are sold.
For off-balance sheet sales of receivables, estimated gains or losses are recognized in the period in which the sale occurs. We
retain certain interests in receivables sold in securitization transactions. These interests are recorded at fair value with unrealized
gains or losses recorded, net of tax, in Accumulated other comprehensive income/(loss), a component of stockholders' equity.
In whole-loan sale transactions, we sell retail installment sale contracts to a buyer who either retains them or sells them in a
subsequent asset-backed securitization. We do not retain any interests in the sold receivables but continue to service such
receivables for a fee.
Certain sales of receivables do not qualify for off-balance sheet treatment. As a result, the sold receivables and associated debt
are not removed from our balance sheet and no gain or loss is recorded for these transactions.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries using the local currency as their functional currency are translated to U.S.
dollars based on current exchange rates and any resulting translation adjustments are included in Accumulated other
comprehensive income/(loss). The net translation adjustment for 2005 was a decrease of $3.4 billion (net of tax of $299 million).
The net adjustment reflects amounts transferred to net income as a result of the sale or liquidation of an entity, resulting in a
$116 million gain (primarily from the sale of Hertz).
Also included in net income are the gains and losses arising from transactions denominated in a currency other than the
functional currency of a location, the impact of re-measuring assets and liabilities of foreign subsidiaries using U.S. dollars as their
functional currency, and the results of our foreign currency hedging activities; for additional discussion of hedging activities, see
Note 20. The net after-tax income effects of these adjustments were gains of $609 million, $596 million and $454 million in 2005,
2004, and 2003 respectively.
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. 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. Special tools placed in service beginning in 1999 are amortized
using the units-of-production method over the expected vehicle model cycle life. Maintenance, repairs, and rearrangement costs
are expensed as incurred.
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