Ford 2009 Annual Report Download - page 114

Notes to the Financial Statements
112 Ford Motor Company | 2009 Annual Report
NOTE 15. IMPAIRMENT OF LONG-LIVED ASSETS (Continued)
Automotive Sector
North America Long-Lived Assets. Based upon the financial impact of rapidly-changing U.S. market conditions during
the second quarter of 2008, we projected a decline in net cash flows for the Ford North America segment. As a result, in
the second quarter of 2008 we tested the long-lived assets for impairment and recorded in Automotive cost of sales a pre-
tax charge of $5.3 billion, representing the amount by which the carrying value of the assets exceeded the estimated fair
value. See Note 4 for further discussion of the fair value used in the impairment.
The table below describes the significant components of the second quarter 2008 long-lived asset impairment
(in millions):
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Financial Services Sector
Certain Vehicle Line Operating Leases. The shift in consumer preferences combined with a weak economic climate
caused a significant reduction in auction values, in particular for used full-size trucks and traditional SUVs. As a result, in
the second quarter of 2008 we tested Ford Credit's operating leases in its North America segment for impairment and
recorded a pre-tax impairment charge in Selling, administrative and other expenses on our consolidated statement of
operations and in Financial Services depreciation on our sector statement of operations of $2.1 billion, representing the
amount by which the carrying value of certain vehicle lines in Ford Credit's lease portfolio exceeded the estimated fair
value. See Note 4 for further discussion of the fair value used in the impairment.
NOTE 16. GOODWILL AND OTHER NET INTANGIBLE ASSETS
Goodwill is subject to impairment testing at least annually or upon a triggering event. Our annual testing of goodwill
occurs in the fourth quarter. An impairment charge is recognized for the amount by which the carrying value of the
operating segment's goodwill exceeds its implied fair value.
Our intangible assets are comprised primarily of manufacturing and production incentive rights, license and advertising
agreements, patents, customer contracts, technology, and land rights and all are amortized over their determinable lives.
Goodwill
In the fourth quarter of 2007, we recorded a goodwill impairment charge of $2.4 billion in Goodwill impairment as a
result of our impairment testing of Volvo. Volvo's fair value declined throughout 2007, primarily related to three factors.
First, the weakening of the U.S. dollar resulted in lower sales revenues relative to euro and Swedish krona material costs;
approximately 25% of Volvo vehicle sales are in the United States. Second, higher gas prices and other factors were
causing a shift from larger to smaller vehicle segments in the U.S. and other markets. This resulted in lower-than-planned
volumes for new vehicles, especially high-margin SUVs. Third, to encourage sales in the face of lower-than-planned
volumes for Volvo vehicles in the U.S. and other markets, we offered higher-than-anticipated marketing incentives on the
sale of these vehicles. These higher marketing incentives led to a reduction in revenues and profits. Volvo goodwill was
tested for impairment at December 31, 2007 by comparing the carrying value of the Volvo reporting unit to its implied fair
value using discounted cash flow and market methods.