Ford 2010 Annual Report Download - page 48

Management’s Discussion and Analysis of Financial Condition and Results of Operations
46 Ford Motor Company | 2010 Annual Report
Debt Reduction Actions. In addition to the $6.7 billion of payments on the drawn amount of the revolving credit facility
and the $1.2 billion of payments on our secured term loans described above, we undertook the following transactions
during 2010, which further reduced our Automotive debt:
VEBA Trust Note Obligations: Pursuant to a March 2008 settlement agreement, the UAW VEBA Trust was created to
assume responsibility for providing retiree health care benefits to eligible Ford-UAW employees and their dependents,
the cost of which would be funded with assets contributed by Ford. The settlement was amended in March 2009 to
create Notes A and B, which smoothed our payment obligations and gave us the option to use Ford Common Stock to
make payments under Note B. On December 31, 2009, we completed the transfer of assets, including Notes A and B, to
the UAW VEBA Trust, and the trust assumed the retiree health care liabilities. The combined carrying value of Notes A
and B, which were non-interest bearing, after giving effect to the payments made on December 31, 2009 was $7 billion.
On June 30, 2010, we made the scheduled payments on Notes A and B in cash totaling about $859 million. In
addition, Ford and Ford Credit together purchased from the UAW VEBA Trust for cash the remaining outstanding
principal amount of Note A (having a present value of $2.96 billion) at a price of 98% or $2.9 billion. Of this amount,
$1.6 billion was paid by Ford, and $1.3 billion was paid by Ford Credit. Ford Credit then delivered to Ford the portion of
Note A that it purchased in satisfaction of an existing intercompany tax liability owed to Ford. As a result of these
purchases, Note A has been retired in its entirety.
On October 29, 2010 we prepaid the entire remaining outstanding principal amount of Note B with cash of $3.5 billion.
The prepayment amount was based on the contractual prepayment amount reflecting an agreed-upon discount of 5%.
Immediately prior to our prepayment, the carrying value of the note was $3.6 billion.
Trust Preferred Securities: As announced on March 27, 2009, we elected to defer for up to 20 consecutive quarters
future interest payments on our outstanding $3 billion principal amount of 6.5% Junior Subordinated Convertible
Debentures due 2032 ("Subordinated Convertible Debentures"), which are the sole assets of a subsidiary trust
("Trust II"). As of December 31, 2010, Trust II had outstanding 6.5% Cumulative Convertible Trust Preferred Securities
with an aggregate liquidation preference of $2.8 billion ("Trust Preferred Securities"). The decision to defer interest was
in accordance with the terms of the Subordinated Convertible Debentures, and resulted in the deferral of distributions on
the Trust Preferred Securities in accordance with the terms of those securities. On June 30, 2010, we paid in cash
$255 million to the trustee of Trust II, which amount represented all of the accrued interest on the Subordinated
Convertible Debentures that was previously deferred, together with interest on the deferred interest compounded
quarterly at an annual rate of 6.5%. This amount was paid by Trust II on July 15, 2010 to holders of the Trust Preferred
Securities, thereby bringing current distributions on those securities. In addition, we reinstated the quarterly interest
payment on the Subordinated Convertible Debentures, and Trust II reinstated the quarterly distribution payment on the
Trust Preferred Securities, starting with the payment due on July 15, 2010.
On February 10, 2011, we provided notice to the property trustee of Trust II that we will redeem in whole the
Subordinated Convertible Debentures due to Trust II on the redemption date of March 15, 2011, at a price of $100.66 per
$100 principal amount of such debentures, plus accrued and unpaid interest to the redemption date. See Note 19 of the
Notes to the Financial Statements for detailed discussion regarding the redemption.
Conversion Offers for Senior Convertible Securities: On October 26, 2010, we launched conversion offers
("Conversion Offers") pursuant to which we offered to pay a premium in cash to induce the holders of any and all of our
outstanding 4.25% Senior Convertible Notes due December 15, 2036 (the "2036 Convertible Notes") and any and all of
our outstanding 4.25% Senior Convertible Notes due November 15, 2016 ("2016 Convertible Notes" and, together with
the 2036 Convertible Notes, "Convertible Notes") to convert their Convertible Notes into shares of Ford Common Stock.
The Conversion Offers expired at midnight on November 23, 2010 and settled on November 30, 2010.
Under the Conversion Offers, each $1,000 principal amount of the 2036 Convertible Notes validly tendered and not
withdrawn was exchanged for 108.6957 shares of Common Stock and $190 in cash and each $1,000 principal amount of
the 2016 Convertible Notes validly tendered and not withdrawn was exchanged for 107.5269 shares of Common Stock
and $215 in cash, plus in each case accrued and unpaid interest. The Conversion Offers resulted in $554 million and
$1.992 billion aggregate principal amount of 2036 Convertible Notes and 2016 Convertible Notes, respectively, being
tendered and accepted for exchange. As a result, we issued 274,385,596 shares of Common Stock and paid $548
million in premiums and accrued interest to settle the Conversion Offers. These shares have been reflected in our fully
diluted earnings per share calculation since January 1, 2010 and, therefore, do not impact our diluted earnings per share.
After settlement, about $25 million and $883 million aggregate principal amount of the 2036 Convertible Notes and 2016
Convertible Notes, respectively, remain outstanding.