MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and Mercury brand vehicles in the U.S. with 24 to 36 month operating lease terms were to decrease by one percent from our  present estimates, the impact would be to increase our depreciation on these vehicles by about $45 million. Similarly, if return  rates for our existing portfolio of 24 to 36 month term Ford, Lincoln and Mercury brand vehicles in the U.S. were to increase by  one percentage point from our present estimates, the impact would be to increase our depreciation on these vehicles by about  $5 million. These increases in depreciation would be charged to depreciation expense during the 2005 through 2007 period so  that the net investment in operating leases at the end of the lease term for these vehicles is equal to the revised expected residual  value. Adjustments to the amount of accumulated depreciation on operating leases will be reflected on our balance sheet as  Net  investment in operating leases  and on the income statement in  Depreciation,  in each case under the Financial Services sector. ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED In December 2004, the FASB issued a revision of Statement of Financial Accounting Standards (“SFAS”) No. 123,  Accounting for  Stock – Based Compensation.  This statement establishes standards for the accounting for transactions in which an entity exchanges its  equity instruments for goods or services. This statement requires a public entity to measure the cost of employee services received in  exchange for an award of equity instruments based on the grant-date fair value of the award. In addition, this statement amends SFAS  No. 95,  Statement of Cash Flows,  to require that excess tax benefits be reported as a financing cash inflow rather than a reduction of  taxes paid. Effective January 1, 2003, we adopted the fair value recognition provision of SFAS No. 123 under a modified prospective  method to all unvested employee awards as of January 1, 2003 and all new awards granted to employees after January 1, 2003 and  forward. Although we are assessing its impact, we do not expect adoption of this revision to the standard to have a material impact on  our consolidated financial position or results of operations. In November 2004, the FASB issued SFAS No. 151,  Inventory Costs – an amendment of ARB No. 43, Inventory Pricing , to clarify the  accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. ARB No. 43 stated that the  above-mentioned items under some circumstances are so abnormal that they require treatment as current period charges. SFAS No.  151 requires that items such as idle facility expense, excessive spoilage, double freight, and handling costs, be treated as current– period charges, regardless of whether they meet the criterion of “so abnormal.” We have applied ARB No. 43 consistent with SFAS  No. 151 and we do not expect any impact on our consolidated financial position or results of operations. In December 2004, the FASB issued SFAS No. 153,  Accounting for Nonmonetary Assets – an amendment of APB Opinion No. 29 .  APB No. 29 required that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged,  with the exception for exchange of similar productive assets which should be measured based on the recorded amount. The SFAS No.  153 requires the exchange of nonmonetary assets to be measured on fair value with the exception of exchanges for such assets which  lack commercial substance, the fair value is not determinable or an exchange transaction that facilitates sales to customers. We have  adopted SFAS No. 153 and will apply on a prospective basis. 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, revenues or expenses, results of operations, liquidity, capital expenditures or capital  resources. These include guarantees, sales of receivables by Ford Credit, and variable interest entities, each of which is discussed below. See Note 26 of the Notes to the Financial Statements for a discussion of our guarantees. Securitization. Ford Credit regularly uses securitization to fund its operations. Ford Credit securitizes its receivables because the  highly liquid and efficient market for securitization of financial assets provides it with a lower cost source of funding, compared  with unsecured debt given its present credit ratings, diversifies its funding among different markets and investors, and provides  additional liquidity. In a typical securitization transaction, Ford Credit sells a pool of finance receivables to a wholly owned,  bankruptcy-remote, special purpose subsidiary that establishes an SPE, usually a trust, and transfers the receivables to the SPE  in exchange for proceeds from interest-bearing securities, commonly called asset-backed securities, that are issued by the SPE  and are secured by future collections on the sold receivables. Following the transfer of the sold receivables to the SPE, and if in  compliance with SFAS No. 140 (discussed below), the receivables are no longer assets of Ford Credit and the sold receivables no  longer appear on its balance sheet. The securities issued by the SPE are structured into senior and subordinated classes. The senior  classes have priority over the subordinated classes in receiving collections from the sold receivables and may also benefit from  other enhancements such as over-collateralization and cash reserve funds. These securities generally are rated by independent  rating agencies and sold in public offerings or in private transactions.  4 7 Sales of Receivables by Ford Credit Guarantees OFF-BALANCE SHEET ARRANGEMENTS