Ford 2009 Annual Report Download - page 119

Notes to the Financial Statements
Ford Motor Company | 2009 Annual Report 117
NOTE 18. RETIREMENT BENEFITS (Continued)
In addition to the foregoing transfers, we retained an obligation for 2009 retiree health care costs incurred, but not yet
reported, which we have estimated to be $71 million as of December 31, 2009. This obligation is recorded in Accrued
liabilities and deferred revenue on our consolidated balance sheet.
As a result of the transfer of the foregoing assets, we removed from our balance sheet and transferred to the
UAW VEBA Trust our UAW postretirement health care obligation of about $13.6 billion.
Upon settlement, we recognized a net loss of $264 million in Automotive cost of sales, including the effect of a
deferred gain from prior periods of $967 million previously included as a component of Accumulated other comprehensive
income/(loss).
A summary of the transaction and related net loss is as follows (in billions):
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We computed the fair value of New Note A and New Note B using an income approach that maximized the use of
relevant observable market available data and adjusted for unobservable data that we believe market participants would
assume given the specific attributes of the instruments. Significant inputs considered in the fair value measurement
included the credit-adjusted yield of our unsecured debt, adjusted for term and liquidity. The principal of New Note A and
New Note B, up to a limit of $3 billion, is secured on a second lien basis with the collateral pledged under the secured
credit agreement we entered into in December 2006 (see Note 19 for additional discussion). Accordingly, we adjusted the
unsecured yields observable in the market to reflect this limited second lien priority within our overall capital structure,
considering spreads on credit default swaps based on our secured and unsecured debt. The discount rate of 9.2% and
9.9% used to determine the fair value for New Note A and New Note B, respectively, reflects consideration of the fair
value of specific features of the instruments, including prepayment provisions and the option to settle New Note B with
Ford Common Stock. The stock settlement option was valued using an industry standard option-pricing model that
considered the volatility of our stock and multiple scenarios with assigned probabilities.