Ford Completes Earnings Restatement

[RichardJensen]

http://media.ford.com/article_display.cfm?...p;make_id=trust

 

The results for this year are improved materially, $550M this year, and the bottom line for 2001-2005 improved an aggregate $1.2B, with the gains from this adjustment offsetting Ford's losses in 2002, and turning Ford's 2002 results from a net loss to a net gain.

 

Crazy stuff.

[silvrsvt]

Accounting sucks!

[Ron W.]

Accounting sucks!

 

Yep, find an accountant willing to move the numbers to where the company wants them and WALLAH instant profit or loss. Dishonest..in my opinion hell yes...legal...most likely. Just one more way for the rich to get richer, why not post the truth to begin with?

[RichardJensen]

Uh huh. Ford restates for a loss and management is full of crooks. Ford restates a profit and management is full of crooks. Why not just say management is full of crooks, you've advanced no logic that proves it.

 

The accounting standard in question involves recognizing interest rate swaps and other bizarre financial transactions as either investments or hedges.

 

A hedge is when you buy a lot of something that increases in value when some related thing that you own decreases in value, and which also decreases in value when some related thing you own increases in value.

 

Here's where the fun starts.

 

Farmer Brown expects to harvest 100,000 bushels of corn. Farmer Brown sells 100,000 bushels of corn futures. The price is, say $2.25 / bushel. Any increase in the value of his crop will decrease the value of his futures a comparable amount. He has, essentially, locked in a price of $2.25 a bushel.

 

Company X has $250,000,000 in outstanding loans at 6%. They sell a $100,000,000 interest rate swap at 6%. Any decrease in interest rates increases the profit that they realize on their loan portfolio while simultaneously decreasing the profit on their interest rate swap.

 

The difference?

 

In example A, Farmer Brown has hedged ALL of his production, making this a true hedge. In example B, company X has not hedge ALL, or even a majority, let alone a substantial majority of its outstanding loans, therefore SFAS 133 directs that this interest rate swap should be treated as an investment, and that Ford must book an increase in value as income, and a decrease in value as a loss.

 

The problem is that SFAS 133 is rather vague in when something like a futures purchase/sale or an interest rate swap should be booked as an investment or a hedge. Ford has erred on the side of caution, and has turned these interest rate swaps (which are routinely acknowledged in the company's 10-K) into investments.