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Notes to the Financial Statements
Ford Motor Company | 2011 Annual Report 129
NOTE 17. RETIREMENT BENEFITS (Continued)
A summary of the transaction and related net loss is as follows (in billions):
Liabilities Transferred
UAW postretirement health care obligation
Plan Assets
Net liability transferred
Assets Transferred
Cash
New Notes A and B (a) (b)
Warrants (a)
TAA (c)
Net assets transferred (excluding Plan Assets)
Deferred gain/Other (d)
Net loss at settlement
December 31,
2009
$13.6
(3.5)
10.1
(2.5)
(7.0)
(1.2)
(0.6)
(11.3)
0.9
$(0.3)
_______
(a) Assets shown at fair value after giving effect to cash payments made on December 31, 2009 of $2.5 billion.
(b) Prepaid in full during 2010.
(c) Includes primarily $591 million of marketable securities and $25 million of cash equivalents.
(d) We previously recorded an actuarial gain of $4.7 billion on August 29, 2008, the effective date of the Settlement Agreement. The gain offset pre-
existing actuarial losses.
We computed the fair value of New Note A and New Note B (See Note 18 for definition and discussion) 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, was secured on a second lien basis with
the collateral pledged under the secured credit agreement we entered into in December 2006 (see Note 18 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, reflected 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.
We measured the fair value of the warrants issued to the UAW VEBA Trust using a Black-Scholes model and an
American Options (Binomial) Model. Inputs to the fair value measurement included an exercise price of $9.20 per share,
and a market price of $10 per share (the closing sale price of Ford Common Stock on December 31, 2009). The fair
value of the warrants reflected a risk-free rate based on a three-year U.S. Treasury debt instrument and a 40% volatility
assumption which was derived from a historical volatility analysis and market (implied) volatility assumptions
commensurate with the exercise term of the warrants, and adjusted for transfer and registration restrictions of the
underlying shares.
See Note 18 for discussion of our prepayment in full of the New Notes A and B.