Annual Report 2011 - Ford Motor Company

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Notes to the Financial Statements NOTE 17. RETIREMENT BENEFITS (Continued) Our policy for funded pension plans is to contribute annually, at a minimum, amounts required by applicable laws and regulations. We occasionally make contributions beyond those legally required. In general, our plans are funded, with the main exceptions being certain plans in Germany, and U.S. defined benefit plans for senior management. In such cases, an unfunded liability is recorded. Employee Retirement and Savings Plans. We, and certain of our subsidiaries, sponsor plans to provide pension benefits for retired employees. We have qualified defined benefit retirement plans in the United States covering hourly and salaried employees. The principal hourly plan covers Ford employees represented by the UAW. The salaried plan covers substantially all other Ford employees in the United States hired on or before December 31, 2003. The hourly plan provides noncontributory benefits related to employee service. The salaried plan provides similar noncontributory benefits and contributory benefits related to pay and service. Other U.S. and non-U.S. subsidiaries have separate plans that generally provide similar types of benefits for their employees. We established, effective January 1, 2004, a defined contribution plan covering salaried U.S. employees hired on or after that date. Effective October 24, 2011, hourly U.S. employees represented by the UAW hired on or after that date also participate in a defined contribution plan. The expense for our worldwide defined contribution plans was $134 million, $123 million, and $92 million in 2011, 2010, and 2009, respectively. This includes the expense for company matching contributions to our primary employee savings plan in the United States of $54 million, $52 million, and $0 in 2011, 2010, and 2009, respectively. OPEB. We, and certain of our subsidiaries, sponsor plans to provide OPEB for retired employees, primarily certain health care and life insurance benefits. The Ford Salaried Health Care Plan (the "Plan") provides retiree health care benefits for Ford salaried employees in the United States hired before June 1, 2001. U.S. salaried employees hired on or after June 1, 2001 are covered by a separate plan that provides for annual company allocations to employee-specific notional accounts to be used to fund postretirement health care benefits. The Plan also covers Ford hourly non-UAW represented employees in the United States hired before November 19, 2007. U.S. hourly employees hired on or after November 19, 2007 are eligible to participate in a separate health care plan that provides defined contributions made by Ford to individual participant accounts. As discussed below, UAW represented employees hired before November 19, 2007 are covered by the UAW Retiree Medical Benefits Trust (the "UAW VEBA Trust"), an independent non-Ford sponsored voluntary employee beneficiary association trust. Company-paid postretirement life insurance benefits also are provided to U.S. salaried employees hired before January 1, 2004 and all U.S. hourly employees. Effective August 1, 2008, the Company-paid retiree basic life insurance benefits were capped at $25,000 for eligible existing and future salaried retirees. Salaried employees hired on or after January 1, 2004 are not eligible for retiree basic life insurance. On December 31, 2009, we fully settled our UAW postretirement health care obligation pursuant to the 2008 UAW Retiree Health Care Settlement Agreement ("Settlement Agreement") amended in 2009. In exchange for the transfer of Plan Assets of about $3.5 billion and certain assets of about $11.3 billion, we irrevocably transferred our obligation to provide retiree health care for eligible active and retired UAW Ford hourly employees and their eligible spouses, surviving spouses and dependents to the UAW VEBA Trust. As a result of the transfer, we removed from our balance sheet and transferred to the UAW VEBA Trust our UAW postretirement obligation of about $13.6 billion. We recognized a net loss of $264 million including the effect of a deferred gain from prior periods of $967 million. 128 Ford Motor Company | 2011 Annual Report
Notes to the Financial Statements 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) December 31, 2009 $ 13.6 (3.5) 10.1 Net loss at settlement _______ (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. $ (0.3) (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 preexisting 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. (2.5) (7.0) (1.2) (0.6) (11.3) 0.9 Ford Motor Company | 2011 Annual Report 129
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PROFITABLE GROWTH FOR ALL Ford Moto
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ON THE COVER The all-new Ford Fusio
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A MESSAGE FROM THE PRESIDENT AND CE
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Environmental and social goals are
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To meet regional needs in Asia Paci
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UTILITIES The latest One Ford globa
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LINCOLN CUTTING-EDGE PRODUCTS, PERS
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GREEN 2 Ford continues to work to f
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1) Ford team at the ringing of the
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THE POWER OF CHOICE With record sal
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PEOPLE HELPING PEOPLE Ford voluntee
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GLOBAL OVERVIEW Automotive Brand Cu
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Annual Report 2011 - Ford Motor Company

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