Selected Other Costs Freight costs are included in cost of sales. Advertising and engineering, research and development costs are expensed as  incurred and were as follows (in billions): 2004 2003 2002 Advertising $ 3.2 $  2.7 $  2.9 Engineering, research and development 7.4 7.3 7.5 Sale of Receivables Ford Credit periodically sells finance receivables in securitization transactions. 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.  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, as  Accumulated other comprehensive income/(loss) , a component of stockholder’s equity. Certain sales of receivables do not qualify for off-balance sheet treatment, and sold receivables and associated debt are not  removed from our balance sheet. As a result, no gain or loss is recorded for these transactions. Foreign Currency Translation Results of operations and cash flows of foreign subsidiaries are, in most cases, translated to U.S. dollars at average-period  currency exchange rates. Assets and liabilities are translated at end-of-period exchange rates.  Included in the statement of income is the impact of re-measuring assets and liabilities of foreign subsidiaries using U.S. dollars  as their functional currency, gains and losses arising from transactions denominated in a currency other than the functional  currency of a location, and the results of our foreign currency hedging activities (Note 19). The net income effects of these  adjustments were gains of $596 million and $454 million, and losses of $19 million in 2004, 2003, and 2002 respectively. Foreign currency translation adjustments related to foreign subsidiaries using the local currency as their functional currency are included in  Accumulated other comprehensive income/(loss).  Net adjustments increased $2.2 billion, $2.9 billion and $2.9 billion in 2004, 2003 and 2002 respectively. The adjustments include a $23 million gain, a $1 million loss and a $32 million loss for 2004, 2003 and 2002, respectively that were reclassified from  Accumulated other comprehensive income/ (loss)  and included in determining the gain or loss on entities sold. 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. The estimated useful lives generally are 30 years for buildings and land improvements and 14.5 years for machinery and  equipment. 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 over the  expected vehicle model cycle life. 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 generally on an operating business unit basis or at the individual asset (or asset group) level, if  held for sale, using undiscounted after-tax estimated cash flows. An asset group is considered impaired when the anticipated  separately identifiable cash flows from the asset group are less than the carrying value. Stock Options Effective January 1, 2003, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards  (“SFAS”) No. 123,  Accounting for Stock-Based Compensation , for stock-based employee compensation. Under the modified  prospective method of adoption provisions of SFAS No. 148,  Accounting for Stock-Based Compensation - Transition and  Disclosure , stock-based employee compensation expense recognized in 2004 and 2003 equals the expense that would have  been recognized had the fair value recognition provisions of SFAS No. 123 been applied to all awards from its original  effective date. Results of prior years have not been restated. 6 3 NOTES TO THE FINANCIAL STATEMENTS