By Michael Rapoport and Christina Rogers 

Ford Motor Co. said Friday it plans to take a $3 billion pretax charge against its fourth-quarter earnings related to its pension and retiree-benefit plans, following a change in pension accounting the company made a year ago.

The charge reflects Ford's annual "re-measurement" of the assets and obligations in its pension and retiree-benefit plans. All of the $3 billion loss would ultimately have been recognized in Ford's earnings over time, but because of its January 2016 shift to "mark-to-market" pension accounting, it now recognizes all such gains and losses in the same year they occur, rather than gradually "smoothing" them into its results.

The charge was expected. Ford had said in a November presentation to analysts and investors a charge of about $3 billion was coming.

The $3 billion charge will be classified as a special item, separate from the company's operating units, including automotive. Ford has said its accounting change would help give investors a clearer view of the operating performance of its business units, as well as making its results more comparable to those of its auto-industry competitors.

Dozens of other companies, such as Verizon Communications Inc. and AT&T Inc., have made similar changes to their accounting methods in recent years.

Lower interest rates that prevailed during the year, especially in Europe, were the primary reason for the $3 billion charge, Ford said. Declines in interest rates have the effect of increasing the current value of pension obligations, which contributes to pension-plan underfunding and affects the plans' expenses.

On a global basis, Ford said its pension plans were underfunded by $8.9 billion at the end of 2016, compared with $8.2 billion a year earlier.

Ford plans to announce its fourth-quarter earnings next Thursday.

Write to Michael Rapoport at Michael.Rapoport@wsj.com and Christina Rogers at christina.rogers@wsj.com

 

(END) Dow Jones Newswires

January 20, 2017 08:42 ET (13:42 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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