Ford 2006 Annual Report Download - page 106
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Notes to the Financial Statements
104
NOTE 27. COMMITMENTS AND CONTINGENCIES (Continued)
intellectual property rights; power generation contracts; governmental regulations and employment-related matters;
dealers, supplier, and other commercial contractual relationships; and financial matters, such as securitizations.
Performance under these indemnities would generally be triggered by a breach of terms of the contract or by a third-party
claim. We regularly evaluate the probability of having to incur costs associated with these indemnifications and have
accrued for expected losses that are probable. We are party to numerous indemnifications and many of these indemnities
do not limit potential payment; therefore, we are unable to estimate a maximum amount of potential future payments that
could result from claims made under these indemnities.
Product Performance
Warranty. Estimated warranty costs and additional service actions are accrued for at the time the vehicle is sold to a
dealer. Included in the warranty cost accruals are costs for basic warranty coverages on vehicles sold. Additional service
actions, such as product recalls and other customer service actions, are not included in the warranty reconciliation below,
but are also accrued for at the time of sale. Estimates for warranty costs are made based primarily on historical warranty
claim experience. The following is a tabular reconciliation of the product warranty accruals (in millions):
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Extended Service Plans: Fees or premiums for the issuance of extended service plans are recognized in income over
the contract period in proportion to the costs expected to be incurred in performing services under the contract.
Litigation and Claims
Various legal actions, governmental investigations and proceedings and claims are pending or may be instituted or
asserted in the future against us, including those arising out of alleged defects in our products; governmental regulations
relating to safety, emissions and fuel economy; financial services; employment-related matters; dealer, supplier and other
contractual relationships; intellectual property rights; product warranties; environmental matters; shareholder or investor
matters; and financial reporting matters. Certain of the pending legal actions are, or purport to be, class actions. Some of
the foregoing matters involve or may involve compensatory, punitive, or antitrust or other treble damage claims in very
large amounts, or demands for recall campaigns, environmental remediation programs, sanctions, or other relief, which, if
granted, would require very large expenditures.
Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with
assurance. We have established accruals for certain of the matters discussed in the foregoing paragraph where losses
are deemed probable and reasonably estimable. It is reasonably possible, however, that some of the matters discussed
in the foregoing paragraph for which accruals have not been established could be decided unfavorably to us and could
require us to pay damages or make other expenditures in amounts or a range of amounts that cannot be estimated at
December 31, 2006. We do not reasonably expect, based on our analysis, that such matters would have a material effect
on future financial statements for a particular year, although such an outcome is possible.