Ford 2006 Annual Report Download - page 95

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Notes to the Financial Statements
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NOTE 23. RETIREMENT BENEFITS (Continued)
The Agreement provisions reduce significantly our share of health care costs. The Agreement has been accounted for
as a negative amendment to the H-S-M-D-D-V Program in the amount of $4 billion, net of $90 million representing the
present value of our commitment to fund the UAW Benefit Trust (discussed below) discounted at 6.5%. We will amortize
the negative plan amendment on a straight-line basis over 12 years (which represents the average remaining service
period of our active workforce). In addition we will accrete interest expense on the discounted value of the funding
commitment noted above. The interest expense recorded for 2006 was $2 million. Our year-end obligation was
$62 million.
Our commitment to fund the UAW Benefit Trust consists of three non-contingent cash payments ("buy-down") totaling
$108 million. We paid the first installment of $30 million in cash to the UAW Benefit Trust on August 10, 2006. We are
committed to make a second contribution of $35 million in 2009, and a third contribution of $43 million in 2011.
The UAW Benefit Trust is controlled by the UAW Benefit Association Plan Committee ("Committee") which is
appointed by the UAW. The Committee does not and will not include any representatives of the Company. The
Committee has the right to appoint an independent trustee ("Trustee") for purposes of managing the assets. The assets
of the UAW Benefit Trust are the responsibility of the Committee, which has full fiduciary responsibility for the investment
strategy, safeguarding of assets, and execution of the benefit plan as designed. Benefit payments to eligible participants
in the UAW Benefit Trust are limited in amount to the assets held by the UAW Benefit Trust. Each year, the Committee
will determine the level of benefits to be paid to eligible participants. If the value of the assets in the UAW Benefit Trust is
deemed insufficient by the Trustee, the Trustee may accelerate our obligation for the second and third contribution to the
extent necessary to enable the UAW Benefit Trust to continue paying benefits.
As part of the Agreement, we also agreed to transfer to the UAW Benefit Trust the right to an amount of cash
determined by the appreciation of 8.75 million shares of Ford Common Stock above $8.145 per share. These stock
appreciation rights are exercisable for three years from the effective date of the Plan Amendment. One third of the
8.75 million stock appreciation rights were available on July 13, 2006. As of December 31, 2006, these stock appreciation
rights had not been exercised. On the first anniversary of the effective date of the Agreement, another third of the
8.75 million stock appreciation rights will become available and on the second anniversary, the remaining stock
appreciation rights will become available. We use a Black-Scholes model to measure the fair value of the stock
appreciation rights on a graded vesting schedule. We expensed $8 million related to the stock appreciation rights in 2006,
recorded in Automotive cost of sales.
As part of the Agreement, UAW members also agreed to divert to the UAW Benefit Trust payments of a previously-
negotiated 2006 wage increase and a portion of negotiated cost-of-living increases through 2011 as they are earned. In
2006, $44 million of diverted wage increases were expensed.
The average annual cost savings to Ford from the Plan Amendment is projected to be $650 million, with projected
average annual cash savings of $200 million. The cost savings associated with the amendment for 2006 is approximately
$300 million.