Ford 2002 Annual Report Download - page 69

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65
NOTES TO FINANCIAL STATEMENTS
Ford Motor Company and Subsidiaries Notes to Financial Statements
NOTE 1. ACCOUNTING POLICIES
PRINCIPLES OF PRESENTATION AND CONSOLIDATION
We present our financial statements on two bases: 1) sector basis for Automotive and Financial Services and 2)
consolidated basis. We believe the additional information provided in the sector basis statements enable the reader to
understand better the operating performance, financial position, cash flow and liquidity of our two very different businesses.
Our financial statements include consolidated majority-owned subsidiaries. Affiliates that we do not control, but have
significant influence over operating and financial policies, are accounted for using the equity method.
Our sector financial statements, consolidated financial statements and notes have all been reclassified to reflect
discontinued and held-for-sale operations.
USE OF ESTIMATES
The financial statements are prepared in conformity with generally accepted accounting principles. Management is required
to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those
assumptions. Estimates and assumptions are periodically reviewed and the effects of any material revisions are reflected
in the financial statements in the period that they are determined to be necessary. Certain amounts previously disclosed
in our press release and current report on Form 8-K dated January 22, 2003, have been reclassified. In addition, certain
reclassifications have been made to prior periods to conform with current reporting.
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
carrying value of these vehicles, included in other current assets, was $2.0 billion at both December 31, 2002 and 2001.
REVENUE RECOGNITION — FINANCIAL SERVICES SECTOR
Revenue from finance receivables, 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 loans is discontinued at the time the loan is impaired. 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.
MARKETING INCENTIVES
Automotive marketing incentives, including customer and dealer cash payments and costs for special financing and leasing
programs (e.g., interest subsidies 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 at the date the incentive program is both approved
and communicated. In general, the amount of interest or lease subsidies paid is the difference between the amounts offered
to retail customers and a market-based interest or lease rate. Costs for marketing incentives are based on assumptions
regarding the number of vehicles that will have a specific incentive applied against them.
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.
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