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Notes to the Financial Statements
106 Ford Motor Company | 2007 Annual Report
NOTE 24. RETIREMENT BENEFITS (Continued)
retirees, surviving spouses and other dependents. This settlement agreement will remain in effect until
September 14, 2011, at which point either Ford or the UAW may provide notice of a desire to terminate the Agreement. If
and when the MOU is implemented, which is the later of January 1, 2010 or the date on which any appeals or challenges
to court approval are exhausted, the Agreement will be superseded by the MOU.
The Agreement was 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 are amortizing the negative plan amendment on a straight-line basis over 12 years (which
represented the average remaining service period of our active workforce at the effective date of the plan amendment). In
addition we are accreting interest expense on the discounted value of the funding commitment noted above. The interest
expense recorded was $4 million and $2 million for 2007 and 2006, respectively.
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 on August 10, 2006. As allowed by the Agreement, the
second installment of $35 million was paid in cash on January 2, 2008. We are committed to make a third contribution of
$43 million in 2009.
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 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 were 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. On the first anniversary of the effective date of the
Agreement, another third of the 8.75 stock appreciation rights were available. As of November 3, 2007, these stock
appreciation rights had not been exercised. As allowed by the Agreement, we agreed with the UAW to satisfy this
obligation by making an aggregate cash contribution of $33 million to the UAW Benefit Trust on the effective date of the
MOU. Using the Black-Scholes model to measure the fair value of stock appreciation rights on a graded vesting
schedule, we expensed $8 million related to stock appreciation rights in 2006. An additional $25 million was expensed in
2007, 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.
This is subject to change based on court approval of the final settlement agreement of the MOU. In 2007 and 2006,
The average annual cost savings to Ford from the Plan Amendment is about $650 million, with annual cash savings of
about $200 million.
respectively, we expensed $152 million and $44 million of diverted wage increases.