Ford 2002 Annual Report Download - page 70

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NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES (CONTINUED)
SELECTED OTHER COSTS
Freight costs are accrued at the time of sale and are included in cost of sales. Advertising and engineering, research and
development costs are expensed as incurred and were as follows (in billions):
2002 2001 2000
Advertising $ 2.9 $ 3.1 $ 3.0
Engineering, research and development 7.7 7.3 6.8
SALE OF RECEIVABLES
Ford Credit sells finance receivables to special purpose entities in securitization transactions without recourse and/or
discounts. The receivables are removed from the balance sheet at the time they are sold. Sales and transfers that do
not meet the criteria for surrender of control are accounted for as borrowings.
Gains or losses from the sale of finance receivables are recognized in the period the sale occurs based on the relative
fair value of the portion sold and the portion allocated to retained interests. The retained interests are recorded at fair
value estimated by discounting future cash flows using a rate that reflects the credit, interest and prepayment risks
associated with similar types of instruments. Changes in fair value are recorded, net of tax, as a component of other
comprehensive income.
FOREIGN CURRENCY TRANSLATION
Results of operations and cash flows are, in most cases, translated at average-period exchange rates and assets and
liabilities are translated at end-of-period exchange rates. Translation adjustments are included in a separate component
of accumulated other comprehensive income. Transaction and translation losses included net income amounted to $87
million, $283 million, and $115 million in 2002, 2001, and 2000 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. Special tools placed in service before January 1, 1999 are amortized using an accelerated method
over the estimated life of those tools. Special tools placed in service beginning in 1999 are amortized using the units-of-
production method. Maintenance, repairs, and rearrangement costs are expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
We test for impairment when events and circumstances warrant such a review. We evaluate the carrying value of long-lived
assets for potential impairment on a regional operating business unit basis or at the individual asset level, if held for sale,
using undiscounted after-tax estimated cash flows.
STOCK OPTIONS
At December 31, 2002, we have stock options outstanding under employee compensation plans that are described more
fully in Note 16. We apply the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued
to Employees, and related Interpretations in accounting for those plans. Prior to January 1, 2003, no stock-based employee
compensation expense has been reflected in net income as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2003, we will adopt
the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-
Based Compensation prospectively to all unvested employee awards as of January 1, 2003, and all new awards granted to
employees after January 1, 2003, using the modified prospective method of adoption under the provisions of SFAS No. 148,
Accounting for Stock-Based Compensation —Transition and Disclosure.
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