Ford 2009 Annual Report Download - page 148

Notes to the Financial Statements
146 Ford Motor Company | 2009 Annual Report
NOTE 24. HELD-FOR-SALE OPERATIONS, DISCONTINUED OPERATIONS, OTHER DISPOSITIONS, AND
ACQUISITIONS
We classify disposal groups as held for sale when the sale is probable within one year and the disposal group is
available for immediate sale in its present condition. We classify disposal groups as discontinued operations when the
criteria to be classified as held for sale have been met and we will not have any significant involvement with the disposal
groups after the sale.
We perform an impairment test on disposal groups. An impairment charge is recognized when the carrying value of
the disposal group exceeds the estimated fair value, less transaction costs. We estimate fair value under the market
approach to approximate the expected proceeds to be received.
We are required by U.S. GAAP to aggregate the assets and liabilities of all held-for-sale disposal groups on the
balance sheet for the period in which the disposal group is held for sale. To provide comparative balance sheets, we also
aggregate the assets and liabilities for significant held-for-sale disposal groups on the prior-period balance sheet.
Automotive Sector
Held-for-Sale Operations
Volvo. In the fourth quarter of 2008, we performed annual goodwill impairment testing for our Volvo reporting unit. We
compared the carrying value of our Volvo reporting unit to its fair value, and concluded that the goodwill was not impaired.
We performed this measurement relying primarily on the income approach, applying a discounted cash flow methodology.
Our valuation was based on an in-use premise which considered a discount rate, after-tax return on sales rate, growth
rate, and terminal value consistent with assumptions we believed principal market participants (i.e., other global
automotive manufacturers) would use. This methodology produced appropriate valuations for entities we disposed of in
recent years; in light of worsening economic conditions, however, we also considered other valuations, including a
discounted cash flow analysis using more conservative assumptions than we initially used. This alternative analysis
incorporated a significantly higher discount rate, offset partially by a higher growth rate; a much lower after-tax return on
sales rate; and a lower terminal value. This alternative analysis reduced the valuation of our Volvo reporting unit by
about 50%. Even this more conservative analysis, however, did not support an impairment of Volvo goodwill at year end.
As previously disclosed, in recent years we have undertaken efforts to divest non-core assets in order to allow us to
focus exclusively on our global Ford brand. Toward that end, in 2007 we sold our interest in Aston Martin; in 2008, we
sold our interest in our Jaguar Land Rover operations, and a significant portion of our ownership in Mazda. During the
first quarter of 2009, based on our strategic review of Volvo and in light of our goal to focus on the global Ford brand, our
Board of Directors committed to actively market Volvo for sale, notwithstanding the current distressed market for
automotive-related assets. Accordingly, in the first quarter of 2009 we reported Volvo as held for sale, and we ceased
depreciation of its long-lived assets in the second quarter of 2009.
Our commitment to actively market Volvo for sale also triggered a held-for-sale impairment test in the first quarter of
2009. We received information from our discussions with potential buyers that provided us a value for Volvo using a
market approach, rather than an income approach. We concluded that the information we received from our discussions
with potential buyers was more representative of the value of Volvo given the current market conditions, the
characteristics of viable market participants, and our anticipation of a more immediate transaction for Volvo. These inputs
resulted in a lower value for Volvo than the discounted cash flow method we had previously used.
After considering deferred gains reported in Accumulated other comprehensive income/(loss), we recognized a pre-tax
impairment charge of $650 million related to our total investment in Volvo. The impairment was recorded in Automotive
cost of sales for the first quarter of 2009.
Had we not committed to actively market Volvo for sale, we would not have been afforded the benefit of the new
information obtained in discussions with potential buyers. Rather, we would have continued to employ an in-use premise
to test Volvo's goodwill and long-lived assets, using a discounted cash flow methodology with assumptions similar to
those we used at year-end 2008.