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## MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

Shown below is an analysis of Ford Credit’s allowance for credit losses related to finance receivables and operating leases for the years ended December 31 (dollar amounts in billions): 

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The decrease in the allowance for credit losses of approximately $500 million primarily reflected significantly improved charge- off performance in the United States, specifically fewer repossessions and a lower average loss per repossession in the Ford, Lincoln and Mercury brand U.S. retail installment sale and operating lease portfolio. Ford Credit’s emphasis on purchasing higher quality receivables, enhancements to its collection practices and higher used vehicle prices resulted in a reduction in net charge-offs and the associated provision for credit losses. 

The following table summarizes the activity related to off-balance sheet sales of receivables reported as revenues for the periods indicated (in millions except for ratios): 

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The decrease in investment and other income related to sales of receivables reflected lower levels of outstanding sold receivables compared with 2003. 

Sales of finance receivables through off-balance sheet securitizations have the impact on earnings of recalendarizing and reclassifying net financing margin (i.e., financing revenue less interest expense) and credit losses related to the sold receivables, compared with how they would have been reported if Ford Credit continued to report the sold receivables on-balance sheet and funded them through asset-backed financings. Recalendarization effects occur initially when the gain or loss on sales of receivables is recognized in the period the receivables are sold. Over the life of the securitization transaction, Ford Credit recognizes income from residual interest in securitization transactions, interest income from retained securities, servicing fees and other receivable sale income. 

