Ford 2010 Annual Report Download - page 177

Notes to the Financial Statements
Ford Motor Company | 2010 Annual Report 175
NOTE 31. COMMITMENTS AND CONTINGENCIES (Continued)
Litigation and Claims
Various legal actions, proceedings and claims are pending or may be instituted or asserted against us. These include
but are not limited to matters arising out of alleged defects in our products; governmental regulations relating to safety,
emissions and fuel economy or other matters; government incentives; tax matters; 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 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, loss of government incentives, assessments, or other relief, which, if granted, would
require very large expenditures.
The extent of our financial exposure to these legal actions, proceedings and claims is difficult to estimate. Many legal
matters do not specify a dollar amount for damages, and many others specify only a jurisdictional minimum. To the extent
an amount is asserted, our historical experience suggests that in most instances the amount asserted is not a reliable
indicator of the ultimate outcome.
In evaluating matters filed against us, we take into consideration factors such as the facts and circumstances
asserted, our historical experience with claims of a similar nature, the likelihood of our prevailing and the severity of any
potential loss. For some matters, no accrual is established because we have determined our risk of loss to be remote.
For all other matters, we generally record an accrual, either on an individual basis or with respect to a group of matters
involving similar claims, based on the factors set forth above. We reevaluate and update our accruals as matters
progress over time.
There is one matter currently pending against us in which we believe a material loss is reasonably possible, but for
which we have not established an accrual. Specifically, administrative proceedings are pending against Ford Brazil
relating to state tax incentives. These incentives are being challenged by two states on the basis that the incentives
granted by another state did not receive formal approval from the organization of Brazilian state treasury offices. If we do
not prevail at the administrative level, we plan to appeal to the state court, which likely would require posting of cash or
other collateral up to the amount assessed. Although we believe our position on the merits is correct, there is a
reasonable possibility of an eventual loss of up to the amount assessed by the taxing authorities (about $500 million,
including current interest and penalties).
There exists a reasonable possibility that the ultimate outcome could be lower or higher than our accruals. In
aggregate, we do not believe that these reasonably possible outcomes in excess of our accruals would be material.
As noted, the litigation process is subject to many uncertainties, and the outcome of individual litigated matters is not
predictable with assurance. Our assessments, and therefore our accruals, are based on our knowledge and experience,
but the ultimate outcome of any matter could require payment substantially in excess of the amount that we have accrued.
Warranty
Included in warranty cost accruals are the costs for basic warranty coverages on products sold. These costs are
estimates based primarily on historical warranty claim experience. Warranty accruals accounted for in Accrued liabilities
and deferred revenue at December 31 were as follows (in millions):
2010
20102010
2010
200
200200
2009
999
Beginning balance ................................................................................................................................
......................
$ 3,147 $ 3,239
Payments made during the period ................................................................................................
...........................
(2,176) (2,484)
Changes in accrual related to warranties issued during the period ................................
................................
1,522 1,652
Changes in accrual related to pre-existing warranties................................................................
..............................
203 584
Foreign currency translation and other................................................................................................
.....................
(50) 156
Ending balance ................................................................................................................................
...........................
$ 2,646 $ 3,147
Excluded from the table above are costs accrued for product recalls and customer satisfaction actions.