Ford 2009 Annual Report Download - page 61

Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ford Motor Company | 2009 Annual Report 59
Plan obligations and costs are based on existing retirement plan provisions. No assumption is made regarding any
potential future changes to benefit provisions beyond those to which we are presently committed (e.g., in existing labor
contracts).
The effects of actual results differing from our assumptions and the effects of changing assumptions are included in
unamortized net gains and losses. Unamortized gains and losses are amortized over future periods and, therefore,
generally affect our recognized expense in future periods. The weighted average discount rate used to determine the
benefit obligation for U.S. plans at December 31, 2009 was 5.74%, compared with 4.95% (6.37% excluding the UAW
retiree health care obligation) at December 31, 2008, resulting in an unamortized loss of about $250 million. This amount
is expected to be recognized as a component of net expense over the expected future years of service (approximately
14 years).
See Note 18 of the Notes to the Financial Statements for more information regarding costs and assumptions for other
postretirement employee benefits.
Sensitivity Analysis. The effect on U.S. and Canadian plans of a one percentage point increase/(decrease) in the
assumed discount rate would be a (decrease)/increase in the postretirement health care benefit expense for 2010 of
approximately $(30) million/$40 million, and in the year-end 2009 obligation of approximately $(590) million/$720 million.
Impairments of Goodwill and Long-Lived Assets
Nature of Estimates Required – Goodwill. Goodwill is not amortized, but is subject to periodic assessments of
impairment. We test goodwill for impairment annually during the fourth quarter, or when events occur or circumstances
change that would more likely than not reduce the fair value of the reporting unit below its carrying value. Impairment of
goodwill is evaluated using a two step process. The first step involves comparison of the fair value of a reporting unit with
its carrying value. If the carrying value of the reporting unit exceeds its fair value, the second step of the process involves
comparison of the implied fair value of goodwill with its carrying value. The implied fair value of goodwill is equivalent to
the excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities as if the reporting unit
had been acquired in a business combination. If the carrying value of the reporting unit's goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an amount equal to the excess. Restoration of a previously-
recognized goodwill impairment loss is not allowed.
Nature of Estimates Required – Held-and-Used Long-Lived Assets. Long-lived asset groups are tested for
recoverability when changes in circumstances indicate the carrying value may not be recoverable. Events that trigger a
test for recoverability include material adverse changes in projected revenues and expenses, significant underperformance
relative to historical and projected future operating results, and significant negative industry or economic trends. When a
triggering event occurs, a test for recoverability is performed, comparing projected undiscounted future cash flows to the
carrying value of the asset group. If the test for recoverability identifies a possible impairment, the asset group's fair value
is measured relying primarily on a discounted cash flow methodology. An impairment charge is recognized for the amount
by which the carrying value of the asset group exceeds its estimated fair value. A test for recoverability also is performed
when management has committed to a plan to sell or otherwise dispose of an asset group and the plan is expected to be
completed within a year. When an impairment loss is recognized for assets to be held and used, the adjusted carrying
amount of those assets is depreciated over its remaining useful life. Restoration of a previously-recognized long-lived
asset impairment loss is not allowed.