Ford 2007 Annual Report Download - page 48

Management’s Discussion and Analysis of Financial Condition and Results of Operations
46 Ford Motor Company | 2007 Annual Report
January 1, 2008. We will adopt the fair value option for available-for-sale securities, which will result in a cumulative after-
tax effect increase of approximately $12 million to the opening balance of Retained earnings as of January 1, 2008.
In December 2007, the FASB issued SFAS No. 141R, Business Combinations ("SFAS No. 141R"). This standard
establishes principles and requirements for how the acquirer recognizes and measures the acquired identifiable assets,
assumed liabilities, noncontrolling interest in the acquiree, and acquired goodwill or gain from a bargain purchase.
SFAS No. 141R also determines what information the acquirer must disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after January 1, 2009. We are assessing the potential impact of this
standard on our financial condition and results of operations.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements –
an amendment of ARB No. 51 ("SFAS No. 160"). This standard establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in
the consolidated financial statements. SFAS No. 160 is effective for us as of January 1, 2009 with early adoption
prohibited. SFAS No. 160 shall be applied prospectively as of the beginning of the fiscal year in which this standard is
initially applied. The presentation and disclosure requirements of this standard shall be applied retrospectively for all
periods presented and will impact how we present and disclose noncontrolling interests and income from noncontrolling
interests in our financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
We have entered into various arrangements not reflected on our balance sheet that have or are reasonably likely to
have a current or future effect on our financial condition, results of operations or liquidity. These include securitizations by
Ford Credit in off-balance sheet transactions, variable interest entities ("VIEs") and guarantees. For a discussion of our
VIEs and guarantees, see Notes 14 and 28, respectively, of the Notes to the Financial Statements.
Securitizations by Ford Credit
Securitization. Ford Credit securitizes finance receivables and net investment in operating leases through a variety of
programs, utilizing amortizing, variable funding and revolving structures. Most of Ford Credit's securitizations do not satisfy
the requirements for accounting sale treatment, and the securitized assets and associated debt remain on Ford Credit's
balance sheet. Some of Ford Credit's securitizations, however, do satisfy accounting sale treatment and are not reflected
on its balance sheet in the same way as debt funding. Both on- and off-balance sheet securitizations have an effect on its
financial condition, operating results and liquidity.
In a securitization transaction, the securitized assets are generally held by a bankruptcy-remote special purpose entity
("SPE") in order to isolate the securitized assets from the claims of Ford Credit's other creditors and to insure that the cash
flows on the securitized assets are available for the benefit of securitization investors. As a result, payments to
securitization investors are based on the creditworthiness of the securitized assets and any enhancements, and not on Ford
Credit's creditworthiness. Senior asset-backed securities issued by the SPEs generally receive the highest short-term credit
ratings and among the highest long-term credit ratings from the rating agencies that rate them.
In order to be eligible for inclusion in a securitization transaction, each asset must satisfy certain eligibility criteria
designed for the specific transaction. For example, for securitizations of retail installment sale contracts, the selection
criteria may be based on factors such as location of the obligor, contract term, payment schedule, interest rate, financing
program, the type of financed vehicle, and whether the contracts are active and in good standing (e.g., when the obligor is
not more than 30-days delinquent or bankrupt). Generally, Ford Credit selects the assets to be included in a particular
securitization randomly from its entire portfolio of assets that satisfy the applicable eligibility criteria. Specific assets are
usually not identified until the month in which the securitization occurs.