Summary
Ford Motor Company (F) announced a significant change in its accounting method for reporting pension and other postretirement employee benefit (OPEB) plans, effective December 31, 2015. This change involves immediately recognizing gains and losses from plan remeasurements in the income statement, rather than amortizing them over several years. This shift from a deferred recognition and amortization approach to immediate recognition is expected to improve the transparency of Ford's core operating performance by isolating these non-operational financial impacts as special items. The company also updated its method for calculating the expected return on plan assets, moving from a market-related value to fair value. This change is purely accounting-based and will not impact cash flows, funding obligations, or employee benefits.
Key Highlights
- 1Ford is changing its accounting method for pension and OPEB plans, effective December 31, 2015.
- 2Pension and OPEB remeasurement gains/losses will now be recognized immediately in income, rather than amortized over time.
- 3This change will result in gains/losses being reported as special items, separate from core operating results.
- 4The company will now use fair value to calculate the expected return on plan assets.
- 5The 2015 pre-tax profit, excluding special items, is now expected to increase by approximately $1.5 billion, with a revised outlook of $10 billion to $11 billion.
- 6This accounting change has no impact on Ford's cash flows, pension funding requirements, or employee benefits.
- 7Prior period financial information for 2013, 2014, and the first nine months of 2015 has been revised retrospectively.