Ford 2006 Annual Report Download - page 65

63
Notes to the Financial Statements
63
NOTE 5. NET INVESTMENT IN OPERATING LEASES (Continued)
Financial Services Sector
Included in Net investment in operating leases at December 31, 2006 and 2005 were interests of $17.3 billion and
$6.5 billion, respectively, that have been included in securitizations that do not satisfy the requirements for accounting
sale treatment. These net investment in operating leases are available only for payment of the debt or other obligations
issued or arising in the securitization transactions; they are not available to pay our other obligations or the claims of our
other creditors.
Included in Financial Services revenues are rents on operating leases. The amounts contractually due for minimum
rentals on operating leases are $3.8 billion for 2007, $3.6 billion for 2008, $1.7 billion for 2009, $433 million for 2010,
$73 million for 2011, and $291 million thereafter.
Assets subject to operating leases are depreciated on the straight-line method over the term of the lease to reduce the
asset to its estimated residual value. Estimated residual values are based on assumptions for used vehicle prices at
lease termination and the number of vehicles that are expected to be returned. Operating lease depreciation expense
(which includes gains and losses on disposal of assets) was $5.2 billion in 2006, $5.7 billion in 2005, and $6.4 billion in
2004.
NOTE 6. ALLOWANCE FOR CREDIT LOSSES — FINANCIAL SERVICES SECTOR
We estimate and record an allowance for credit losses related to impaired receivables and operating leases at the date
of the financial statements. This allowance is based on factors including historical credit loss trends (for example, loss
history and key physical trends such as delinquency and repossessions), the composition and credit quality of our present
portfolio (including vehicle brand, term, risk evaluation, and new/used), trends in historical and projected used vehicle
values and general economic measures. Additions to the allowance for credit losses are made by recording charges to
the Provision for credit and insurance losses on our statement of income. Finance receivables and lease investments are
charged to the allowance for credit losses at the earlier of when an account is deemed to be uncollectible or when an
account is 120 days delinquent, taking into consideration the financial condition of the borrower or lessee, the value of the
collateral, recourse to guarantors and other factors. Recoveries on finance receivables and lease investments previously
charged off as uncollectible are credited to the allowance for credit losses.
The allowance for credit losses is included in Finance receivables, net and Net investment in operating leases.
Changes in the allowance for credit losses for finance receivables, investment in direct financing leases and investment in
operating leases were as follows (in millions):
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