Item 7.01. Regulation FD Disclosure.
Takata Field Service Action
Ford Motor Company will be conducting a field service action to replace Takata
airbag inflators in certain model year 2006 through 2012 vehicles, including
Ford Ranger (MY 2007-2011), Fusion (MY 2006-2012), Edge (MY 2007-2010), Lincoln
MKZ/Zephyr (MY 2006-2012), MKX (MY 2007-2010), and Mercury Milan (MY 2006-2011)
vehicles. The action will affect approximately 2.7 million vehicles in the
United States and approximately 0.3 million vehicles in Canada and other
locations. The cost of the action is estimated to be about $610 million and will
be reflected in our fourth quarter 2020 results. Consistent with our corporate
policy, which considers the magnitude of individual field service actions, the
expense will be treated as a special item. Accordingly, it will not impact our
total Company adjusted EBIT or adjusted earnings per share.
This field service action applies to the PSDI-5 design desiccated Takata
inflators, which are different in design and performance from earlier-recalled
non-desiccated Takata inflators. When NHTSA extended a finding of defect in 2017
to these desiccated inflators, we retained technical experts to conduct a
comprehensive technical study and testing protocol. In addition to confirming
the absence of any field failures of this family of inflators, the study
concluded that the PSDI-5 desiccated inflators did not evidence degradation that
would lead to a risk of future failures warranting a recall.
We filed a Petition for Inconsequentiality with NHTSA in July 2017, seeking
exemption from the recall requirements of the Safety Act because the risks
identified were so remote that they were inconsequential to safety. Our petition
was denied on January 19, 2021.
Accounting for Pension and OPEB Plans
Ford Motor Company uses the mark-to-market method of accounting for pension and
other postretirement employee benefits (OPEB). Under this method, we recognize
pension and OPEB remeasurement gains and losses in income when incurred rather
than amortizing them over time as a component of net periodic benefit cost. The
remeasurement gains and losses are reported as special items since we believe
they are not reflective of our ongoing operating results.
We expect to record a pre-tax remeasurement loss in our fourth quarter 2020
results of approximately $1.5 billion related to our pension and OPEB plans.
This includes a $350 million loss associated with pension plans in the United
States, a $650 million loss associated with pension plans outside the United
States, and a $500 million loss associated with OPEB plans globally. Overall,
the remeasurement loss is driven by lower discount rates compared with year-end
2019, offset partially by asset returns in excess of our assumptions. On an
after-tax basis, the remeasurement loss is expected to reduce our net income by
about $1.2 billion. Because the remeasurement loss is a special item, it will
not impact our total Company adjusted EBIT or adjusted earnings per share. The
remeasurement loss did not have an impact on our cash in 2020, and does not
change our expectations for pension contributions in 2021.
Including the impact of remeasurement gains and losses during 2020, we expect
the underfunded status for our pension and OPEB plans to be about $6.7 billion
and $6.6 billion, respectively, at year-end 2020, compared with $6.8 billion and
$6.1 billion, respectively, at year-end 2019. The change to the underfunded
status of our plans in the aggregate primarily reflects the impact of lower
discount rates on unfunded plans.
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