Join Date: Feb 2001
Location: The Hills of North Georgia,USA
Re: US:Ford restates results from past years
Accounting fix lifts Ford profit $1.2 billion over 5 years
By SARAH A. WEBSTER
DETROIT FREE PRESS BUSINESS WRITER
Ford Motor Co. today said in a federal regulatory filing that it earned $1.2 billion more in profit over the past five years than it previously reported.
The struggling Dearborn-based automaker revised its earnings results over the past five years to correct for an accounting error.
While the automaker earned $805 million between 2001 and last year, far more than the $427 million loss previously reported, the company's results continued to show deterioration in 2005.
It was that poor performance that led the automaker to embark on its most recent restructuring effort, which calls for cutting 44,000 jobs and closing 16 plants by 2012.
Most of the financial gains booked because of the accounting fix were in 2001 and 2002. In the following years, Ford's results were actually worse than reported.
In all, here's how Ford's financial results changed:
2005: Ford posted net income of $1.4 billion - not the $2.0 billion previously reported.
2004: Ford earned net income of $3.0 billion - not $3.5 billion.
2003: Ford earned $239 million - not $495 million.
2002: Ford earned $875 million - a better performance than the net loss of $980 million reported.
2001: Ford posted a loss of $4.8 billion - not the $5.5 billion loss reported then.
For the third quarter and first nine months of 2006, the company reported a net loss of $5.2 billion and $7 billion, respectively. This is an improvement over the $5.8 billion loss previously reported for the July-September period, which had brought year-to-date losses to $7.2 billion.
Several top analysts who have reviewed Ford's accounting problem believed the error was technical in nature, relating to the way companies account for hedging activities, and not uncommon.
CFO Magazine reported in May that many companies have had a problem applying SFAS 133, which is an accounting rule issued by the Financial Accounting Standards Board, since they began complying with it six years ago.
Last year, the magazine reported, 57 companies restated their earnings because of faulty hedge accounting - up from 27 in 2004.
"A lot of savvy companies were caught out on this," Wesley Smyth, vice president and senior accounting analyst at Moody's Investors Service, previously told the Free Press.
Hedges, in general, are investments designed to offset changing prices, such as fluctuations in currencies or commodities. In Ford's case, the company's credit arm enters into hedges to protect against fluctuations in the interest rate. How Ford has accounted for those hedges is the issue.
The value of the hedge changes with everyday market conditions, and the company's financial statements are supposed to reflect those ups and downs unless a company qualifies for a certain exemption.
They can do that if they can prove that their hedge is highly effective in offsetting the fluctuations, under the rules and guidance outlined in SFAS 133, which is about
1,000 pages long, Smyth said.
Many companies mistakenly thought they qualified for this exemption under a provision known as the "shortcut" method. Now they have to record changes in the value of their hedges in financial results.
"That increases the volatility," Smyth said.
Ford acknowledges now that it didn't qualify for the exemption, even though "these interest-rate swaps were and continue to be highly effective economic hedges."
My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.
My next Ford.....