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Notes to the Financial Statements<br />
NOTE 17. RETIREMENT BENEFITS (Continued)<br />
A summary of the transaction and related net loss is as follows (in billions):<br />
Liabilities Transferred<br />
UAW postretirement health care obligation<br />
Plan Assets<br />
Net liability transferred<br />
December 31,<br />
2009<br />
$ 13.6<br />
(3.5)<br />
10.1<br />
Assets Transferred<br />
Cash<br />
New Notes A and B (a) (b)<br />
Warrants (a)<br />
TAA (c)<br />
Net assets transferred (excluding Plan Assets)<br />
(2.5)<br />
(7.0)<br />
(1.2)<br />
(0.6)<br />
(11.3)<br />
Deferred gain/Other (d)<br />
0.9<br />
Net loss at settlement<br />
$ (0.3)<br />
_______<br />
(a) Assets shown at fair value after giving effect to cash payments made on December 31, 2009 of $2.5 billion.<br />
(b) Prepaid in full during 2010.<br />
(c) Includes primarily $591 million of marketable securities and $25 million of cash equivalents.<br />
(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<br />
actuarial losses.<br />
We computed the fair value of New Note A and New Note B (See Note 18 for definition and discussion) using an<br />
income approach that maximized the use of relevant observable market available data and adjusted for unobservable<br />
data that we believe market participants would assume given the specific attributes of the instruments. Significant inputs<br />
considered in the fair value measurement included the credit-adjusted yield of our unsecured debt, adjusted for term and<br />
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<br />
the collateral pledged under the secured credit agreement we entered into in December 2006 (see Note 18 for additional<br />
discussion). Accordingly, we adjusted the unsecured yields observable in the market to reflect this limited second lien<br />
priority within our overall capital structure, considering spreads on credit default swaps based on our secured and<br />
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,<br />
respectively, reflected consideration of the fair value of specific features of the instruments, including prepayment<br />
provisions and the option to settle New Note B with Ford Common Stock. The stock settlement option was valued using<br />
an industry standard option-pricing model that considered the volatility of our stock and multiple scenarios with assigned<br />
probabilities.<br />
We measured the fair value of the warrants issued to the UAW VEBA Trust using a Black-Scholes model and an<br />
American Options (Binomial) Model. Inputs to the fair value measurement included an exercise price of $9.20 per share,<br />
and a market price of $10 per share (the closing sale price of Ford Common Stock on December 31, 2009). The fair<br />
value of the warrants reflected a risk-free rate based on a three-year U.S. Treasury debt instrument and a 40% volatility<br />
assumption which was derived from a historical volatility analysis and market (implied) volatility assumptions<br />
commensurate with the exercise term of the warrants, and adjusted for transfer and registration restrictions of the<br />
underlying shares.<br />
See Note 18 for discussion of our prepayment in full of the New Notes A and B.<br />
Ford Motor Company | 2011 Annual Report 129