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Ford Motor Company Annual Report 2005 62 Ford Motor Company Annual Report 2005 63
Notes to the Financial Statements
NOTE 2. SUMMARY OF ACCOUNTING POLICIES (Continued)
Asset Impairments
Discontinued and Held-for-Sale Operations. We perform an impairment test on an asset group to be discontinued, held for sale,
or otherwise disposed of when management has committed to the action and the action is expected to be completed within one
year. We estimate fair value to approximate the expected proceeds to be received, less transaction costs and compare it to the
carrying value of the asset group. An impairment charge is recognized when the carrying value exceeds the estimated fair market
value. When the estimated fair market value exceeds the carrying value of the asset group, gain is recognized upon disposal.
Long-Lived Assets. We monitor the carrying value of long-lived asset groups held and used for potential impairment when
certain triggering events have occurred. These events include current period losses combined with a history of losses or a
projection of continuing losses, or a significant decrease in the market value. When a triggering event occurs for long-lived asset
groups held and used, a test for recoverability is performed, comparing projected undiscounted future cash flows, utilizing current
cash flow information and expected growth rates, to the carrying value of the asset group. If the test for recoverability identifies a
possible impairment, internal and external valuation experts are consulted. The asset group fair value is measured relying
primarily on the discounted cash flow methodology. Additionally, we consider various market multiples (e.g., revenue and
EBITDA) within the same industry.
Supplier Price Adjustments
We frequently negotiate price adjustments with our suppliers throughout a production cycle, even after receiving production
material. These price adjustments relate to changes in design specifications or to other commercial terms such as economics,
productivity, and competitive pricing and are recognized in income when settled. In general, we avoid price changes in
consideration of future business; however when these occur, our policy is to defer the financial statement impact of any such price
change given explicitly in consideration of future business where guaranteed volumes are specified.