What is the financial impact of this accounting change?

The change will result in a one-time pre-tax special item charge of $800 million in the fourth quarter of 2014. After accounting for deferred tax benefits, this charge will reduce net income attributable to Ford by approximately $700 million.

Will Ford's Venezuelan operations cease?

No, Ford's operations in Venezuela will continue for the foreseeable future. However, their results will no longer be consolidated into Ford's financial statements. Ford will recognize income from these operations only when cash is received, either through payments for parts sold or from dividends.

Does this affect Ford's overall 2014 profit guidance?

No, Ford's guidance for its full-year 2014 total pre-tax profit, excluding special items, remains unaffected and is expected to be about $6 billion. The $800 million charge is considered a special item and does not impact the operational profit outlook.

FORD MOTOR CO 8-K SEC Disclosure

Q: Why is Ford changing its accounting for Venezuelan operations?

Ford is changing its accounting method due to severe Venezuelan exchange control regulations that have created an 'other-than-temporary lack of exchangeability' between the Venezuelan bolivar and the U.S. dollar. These regulations have restricted parts availability, limited production, and constrained the ability to pay dividends and obligations in U.S. dollars.

Summary

Ford Motor Company (F) announced a significant accounting change related to its Venezuelan operations in an 8-K filing dated January 23, 2015. Due to severe exchange control regulations and restrictions on remitting funds and parts availability, Ford has shifted from consolidating its Venezuelan operations to using the cost method of accounting. This change, effective December 31, 2014, reflects the "other-than-temporary lack of exchangeability" between the Venezuelan bolivar and the U.S. dollar, significantly limiting production and the ability to meet U.S. dollar obligations. This accounting shift will result in a one-time pre-tax special item charge of $800 million in the fourth quarter of 2014, reducing net income attributable to Ford by approximately $700 million after considering deferred tax benefits. While Ford's Venezuelan operations will continue, their results will no longer be included in consolidated financial statements. Income will be recognized only to the extent of payments received for parts sold or dividends distributed. The company expects its full-year 2014 pre-tax profit, excluding special items, to remain around $6 billion, indicating this charge is an isolated event impacting reported earnings but not the underlying operational outlook.

Key Highlights

1Ford is changing its accounting method for Venezuelan operations from consolidation to the cost method due to severe exchange control regulations and inability to remit funds.
2This change is effective December 31, 2014, and is a response to an "other-than-temporary lack of exchangeability" of the Venezuelan bolivar.
3A one-time pre-tax special item charge of $800 million will be recorded in the fourth quarter of 2014.
4The net impact on net income attributable to Ford for Q4 2014 will be a reduction of approximately $700 million due to deferred tax benefits.
5Ford's Venezuelan operations will continue, but their results will no longer be consolidated; income will be recognized only as cash is received.
6The company's cash balance in Venezuela ($500 million as of December 31, 2014) will be removed from Automotive Gross Cash.
7The full-year 2014 pre-tax profit guidance (excluding special items) remains unaffected at approximately $6 billion.

FORD MOTOR CO 8-K Report, Corporate Update (Jan 23, 2015)

Summary

Key Highlights

Frequently Asked Questions