MRO Magazine

Ford Adopts Mark-to-Market for Pension and OPEB Plans; Improves Transparency of Automotive Operating Performance


January 7, 2016
By Business Wire News

DEARBORN, Mich.

Ford Motor Company (NYSE: F) is changing its method for reporting pension and other postretirement employee benefits (OPEB) to provide a clearer view of Ford’s operating performance and segment results.

“Ford has delivered consistently strong operating results since 2010. The change we are announcing today in how we report accumulated costs related to our pension and OPEB plans will show that our operating results were even stronger, particularly in North America and Europe,” said Bob Shanks, Ford executive vice president and chief financial officer. “The change better aligns our operating results with our operating cash flow and makes our results more comparable to our major competitors. Taking this step was enabled by the pension de-risking strategy we announced in 2012 and have been implementing ever since.”

Mark-to-market, also known as immediate recognition accounting, has been adopted by many large U.S. corporations. Under this method, which Ford adopted on Dec. 31, 2015, Ford will recognize pension and OPEB remeasurement gains and losses in the year incurred (generally in the fourth quarter) rather than amortizing them over many years. The remeasurement will be recognized centrally each year instead of in Ford’s Automotive business units and will be reported as a special item since it is not reflective of the underlying operating results of Ford’s automotive business. The change will have no effect on cash, pension funding requirements or employees’ pension or OPEB benefits.

With this change, Ford’s 2015 pre-tax profit, excluding special items, is expected to increase by about $1.5 billion and is now expected to be $10 billion to $11 billion. Ford has retrospectively applied this change and revised prior period results. The tables that follow contain revised financial information for 2013, 2014 and the first nine months of 2015.

About Ford Motor Company

Ford Motor Company, a global automotive industry leader based in Dearborn, Michigan, manufactures or distributes automobiles across six continents. With about 197,000 employees and 67 plants worldwide, the company’s automotive brands include Ford and Lincoln. The company provides financial services through Ford Motor Credit Company. For more information regarding Ford and its products worldwide, please visit www.corporate.ford.com.

Risk Factors

Statements included or incorporated by reference herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on expectations, forecasts, and assumptions by our management and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation:

  • Decline in industry sales volume, particularly in the United States, Europe, or China, due to financial crisis, recession, geopolitical events, or other factors;
  • Decline in Ford’s market share or failure to achieve growth;
  • Lower-than-anticipated market acceptance of Ford’s new or existing products;
  • Market shift away from sales of larger, more profitable vehicles beyond Ford’s current planning assumption, particularly in the United States;
  • An increase in or continued volatility of fuel prices, or reduced availability of fuel;
  • Continued or increased price competition resulting from industry excess capacity, currency fluctuations, or other factors;
  • Fluctuations in foreign currency exchange rates, commodity prices, and interest rates;
  • Adverse effects resulting from economic, geopolitical, or other events;
  • Economic distress of suppliers that may require Ford to provide substantial financial support or take other measures to ensure supplies of components or materials and could increase costs, affect liquidity, or cause production constraints or disruptions;
  • Work stoppages at Ford or supplier facilities or other limitations on production (whether as a result of labor disputes, natural or man-made disasters, tight credit markets or other financial distress, production constraints or difficulties, or other factors);
  • Single-source supply of components or materials;
  • Labor or other constraints on Ford’s ability to maintain competitive cost structure;
  • Substantial pension and postretirement health care and life insurance liabilities impairing liquidity or financial condition;
  • Worse-than-assumed economic and demographic experience for postretirement benefit plans (e.g., discount rates or investment returns);
  • Restriction on use of tax attributes from tax law “ownership change;”
  • The discovery of defects in vehicles resulting in delays in new model launches, recall campaigns, or increased warranty costs;
  • Increased safety, emissions, fuel economy, or other regulations resulting in higher costs, cash expenditures, and/or sales restrictions;
  • Unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged defects in products, perceived environmental impacts, or otherwise;
  • A change in requirements under long-term supply arrangements committing Ford to purchase minimum or fixed quantities of certain parts, or to pay a minimum amount to the seller (“take-or-pay” contracts);
  • Adverse effects on results from a decrease in or cessation or clawback of government incentives related to investments;
  • Inherent limitations of internal controls impacting financial statements and safeguarding of assets;
  • Cybersecurity risks to operational systems, security systems, or infrastructure owned by Ford, Ford Credit, or a third-party vendor or supplier;
  • Failure of financial institutions to fulfill commitments under committed credit and liquidity facilities;
  • Inability of Ford Credit to access debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts, due to credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors;
  • Higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles;
  • Increased competition from banks, financial institutions, or other third parties seeking to increase their share of financing Ford vehicles; and
  • New or increased credit, consumer, or data protection or other regulations resulting in higher costs and/or additional financing restrictions.

We cannot be certain that any expectation, forecast, or assumption made in preparing forward-looking statements will prove accurate, or that any projection will be realized. It is to be expected that there may be differences between projected and actual results. Our forward-looking statements speak only as of the date of their initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events, or otherwise. For additional discussion, see “Item 1A. Risk Factors” in our 2014 Form 10-K Report, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

The following table shows Ford Motor Company’s previously reported and revised results (in millions, except per share amounts):

 Automotive Sector
Operating Segments  Reconciling Items  

North
America

 Europe  

Rest of
World (a)

Other
Automotive

 

Special
Items

Total
For the First Nine Months Ended September 30, 2015
Income/(Loss) before income taxes – Previously Reported $       6,607 $     (381 ) $     (204 ) $ (542 ) $ 166 $   5,646
Elimination of (gain)/loss amortization 579 478 2 1,059
Other – primarily asset fair value change and inventory effects 130 31 4 165
Net remeasurement gain/(loss)            
Income/(Loss) before income taxes – Automotive Sector – Revised $ 7,316 $ 128 $ (198 ) $ (542 ) $ 166 $ 6,870
Income before income taxes – Financial Services Sector 1,486  
Income before income taxes $ 8,356
(Provision for)/Benefit from income taxes (2,849 )
(Income)/Loss attributable to noncontrolling interests (2 )
Net income attributable to Ford Motor Company $   5,505  
 
Diluted earnings per common share – Revised $ 1.38
 
Memo: Diluted earnings per common share excluding special items $ 1.35
 
For the Year Ended December 31, 2014
Income/(Loss) before income taxes – Previously Reported $ 6,898 $ (1,062 ) $ (593 ) $ (755 ) $ (1,940 ) $ 2,548
Elimination of (gain)/loss amortization 481 411 (1 ) 891
Other – primarily asset fair value change and inventory effects 64 53 3 120
Net remeasurement gain/(loss) and other special items (b) (c)         (4,119 ) (4,119 )
Income/(Loss) before income taxes – Automotive Sector – Revised $ 7,443 $ (598 ) $ (591 ) $ (755 ) $ (6,059 ) $ (560 )
Income before income taxes – Financial Services Sector 1,794  
Income before income taxes $ 1,234
(Provision for)/Benefit from income taxes (4 )
(Income)/Loss attributable to noncontrolling interests 1  
Net income attributable to Ford Motor Company $   1,231  
 
Diluted earnings per common share – Revised $ 0.31
 
Memo: Diluted earnings per common share excluding special items $ 1.34
 
For the Year Ended December 31, 2013
Income/(Loss) before income taxes – Previously Reported $ 8,809 $ (1,442 ) $ 225 $ (656 ) $ (1,568 ) $ 5,368
Elimination of (gain)/loss amortization 1,054 443 2 1,499
Other – primarily asset fair value change and inventory effects 14 (26 ) (12 )
Net remeasurement gain/(loss) and other special items (c)         5,844   5,844  
Income/(Loss) before income taxes – Automotive Sector – Revised $ 9,877 $ (1,025 ) $ 227 $ (656 ) $ 4,276 $ 12,699
Income before income taxes – Financial Services Sector 1,672  
Income before income taxes $ 14,371
(Provision for)/Benefit from income taxes (2,425 )
(Income)/Loss attributable to noncontrolling interests 7  
Net income attributable to Ford Motor Company $   11,953  
 
Diluted earnings per common share – Revised $ 2.94
 
Memo: Diluted earnings per common share excluding special items $ 1.86

::

(a)   Includes South America, Middle East & Africa, and Asia Pacific Automotive segments.
(b) Included in 2014 net remeasurement gain/(loss) is a $(782) million adjustment to correct for an understatement in the year-end 2014 valuation of our U.S. pension benefit obligation previously recorded in the first quarter of 2015 and disclosed in our Quarterly Reports on Form 10-Q filed in 2015.
(c) Other special items include the reversal of settlement expense related to recognition of unamortized gains/losses.
 

The following table shows the Automotive sector’s previously reported and revised results (in millions):

 Automotive Sector
2015  2014

September
30

 

June

30

 

March

31

December
31

 

September
30

 

June

30

 

March

31

North America

 

Income/(Loss) before income taxes – Previously Reported

$ 2,670 $     2,597 $     1,340 $ 1,548 $ 1,410 $     2,440 $     1,500
Elimination of (gain)/loss amortization 192 193 194 120 121 120 120
Other – primarily asset fair value change and inventory effects 47   48     35   (54 ) 6   7   105  
Income/(Loss) before income taxes – Revised $ 2,909 $ 2,838 $ 1,569 $ 1,614 $ 1,537 $ 2,567 $ 1,725
 
Europe .
Income/(Loss) before income taxes – Previously Reported $ (182 ) $ (14 ) $ (185 ) $ (443 ) $ (439 ) $ 14 $ (194 )
Elimination of (gain)/loss amortization 160 156 162 99 104 105 103
Other – primarily asset fair value change and inventory effects 31   19   (19 ) 47   5   5   (4 )
Income/(Loss) before income taxes – Revised $ 9 $ 161 $ (42 ) $ (297 ) $ (330 ) $ 124 $ (95 )
 
Rest of World (a) .
Income/(Loss) before income taxes – Previously Reported $ (158 ) $ (39 ) $ (7 ) $ (174 ) $ (141 ) $ (113 ) $ (165 )
Elimination of (gain)/loss amortization 1 1 (1 )
Other – primarily asset fair value change and inventory effects 2   1   1   1     1   1  
Income/(Loss) before income taxes – Revised $ (156 ) $ (37 ) $ (5 ) $ (174 ) $ (141 ) $ (112 ) $ (164 )
 
Other Automotive .
Income/(Loss) before income taxes – Previously Reported $ (163 ) $ (167 ) $ (212 ) $ (218 ) $ (144 ) $ (171 ) $ (222 )
Elimination of (gain)/loss amortization
Other – primarily asset fair value change and inventory effects              
Income/(Loss) before income taxes – Revised $ (163 ) $ (167 ) $ (212 ) $ (218 ) $ (144 ) $ (171 ) $ (222 )
 
Special Items .
Income/(Loss) before income taxes – Previously Reported $ 166 $ $ $ (1,177 ) $ (160 ) $ (481 ) $ (122 )
Net remeasurement gain/(loss) and other special items (b)       (4,119 )      
Income/(Loss) before income taxes – Revised $ 166 $ $ $ (5,296 ) $ (160 ) $ (481 ) $ (122 )
 
Total .
Income/(Loss) before income taxes – Previously Reported $ 2,333 $ 2,377 $ 936 $ (464 ) $ 526 $ 1,689 $ 797
Elimination of (gain)/loss amortization 352 350 357 218 225 225 223
Other – primarily asset fair value change and inventory effects 80 68 17 (6 ) 11 13 102
Special items       (4,119 )      
Income/(Loss) before income taxes – Revised $ 2,765 $ 2,795 $ 1,310 $ (4,371 ) $ 762 $ 1,927 $ 1,122

::

(a)   Includes South America, Middle East & Africa, and Asia Pacific Automotive segments.
(b) Included in fourth quarter 2014 net remeasurement gain/(loss) is a $(782) million adjustment to correct for an understatement in the year-end 2014 valuation of our U.S. pension benefit obligation previously recorded in the first quarter of 2015 and disclosed in our Quarterly Reports on Form 10-Q filed in 2015. Other special items includes the reversal of settlement expense related to recognition of unamortized gains/losses.
 

For news releases, related materials and high-resolution photos and video, visit www.media.ford.com.

Ford Motor Company
Media:
Whitney Eichinger
1.313.390.5565
weiching@ford.com
Equity Investment Community:
Erik Eliason
1.313.594.0613
fordir@ford.com
Fixed Income Investment Community:
Stephen Dahle
1.313.621.0881
fixedinc@ford.com
Shareholder Inquiries:
1.800.555.5259 or 1.313.845.8540
stockinf@ford.com