Summary
Ford Motor Company (F) filed an 8-K on May 7, 2010, to announce the retrospective application of a new accounting standard for Variable Interest Entities (VIEs), effective January 1, 2010. This change in accounting policy led to the deconsolidation of several previously consolidated automotive joint ventures, as Ford determined it did not have the primary power to direct their activities under the new qualitative assessment. While this resulted in a decrease in reported income before taxes and cash/equivalents for full-year 2009, it notably reduced the company's reported debt by approximately $800 million. Importantly, the net income attributable to Ford for the full year 2009 remained unchanged at $2.7 billion.
Key Highlights
- 1Ford is retrospectively applying a new accounting standard for Variable Interest Entities (VIEs) as of January 1, 2010.
- 2The new standard shifts from a quantitative to a qualitative assessment of control over VIEs.
- 3Several automotive sector joint ventures have been deconsolidated as they no longer meet the criteria under the new standard.
- 4The deconsolidation resulted in a decrease of approximately $400 million in reported income before taxes for full-year 2009.
- 5Cash and cash equivalents decreased by approximately $550 million as of December 31, 2009, due to the change.
- 6Reported debt decreased by approximately $800 million as of December 31, 2009, including $500 million maturing in 2010.
- 7Net income attributable to Ford for full-year 2009 remains unchanged at $2.7 billion despite the accounting adjustments.
Frequently Asked Questions
This 8-K filing is primarily to announce Ford's decision to apply a new accounting standard for Variable Interest Entities (VIEs) retrospectively to prior periods. This change in accounting policy affects how certain joint ventures are consolidated on Ford's financial statements.
The retrospective application led to a decrease in reported income before taxes for full-year 2009 by about $400 million, and a reduction in cash and cash equivalents by about $550 million as of December 31, 2009. However, a significant positive impact is the reduction of reported debt by approximately $800 million as of December 31, 2009.
No, the net income attributable to Ford Motor Company for the full year 2009 remained unchanged at $2.7 billion, despite the changes in other line items due to the accounting standard adoption.
Several automotive sector entities, including AutoAlliance International, Inc., Ford Otomotiv Sanayi Anonim Sirketi, and Getrag Ford Transmissions GmbH, among others, were deconsolidated. This occurred because, under the new qualitative assessment, Ford determined it did not have the primary power to direct their activities or that this power was shared with unrelated third parties.