Ford to report higher earnings due to change in financial reporting for pension expenses
(Reuters) — Ford Motor Co. said on Thursday it will restate its financial results since 2011 and show a $1.5 billion rise in 2015 pretax profit because it is moving to a mark-to-market method of reporting pension expenses.
Ford's forecast for 2015 operating profit is now $10 billion to $11 billion, up from $8.5 billion to $9.5 billion.
Mark-to-market, also called immediate recognition reporting, allows Ford to report the impact of pensions on its balance sheet in the year they occur, rather than "smoothing" them over a period of several years.
The changes are effective Dec. 31, 2015.
The move shows that operating profit is most improved in North America and Europe, Ford Chief Financial Officer Bob Shanks said in a statement.
Shanks said the reporting change was in part a result of the de-risking strategy the company announced in 2012.
Ford had been studying a move since 2010, when Verizon and AT&T switched their pension reporting to mark-to-market, said Stacey Steslicki, Ford's controller for global retirement benefits. About 50 companies that use U.S. accounting methods have made the switch, she said.
Stuart Rowley, Ford's controller, said the move will make it easier for the company to compare its financial performance with its U.S. and global competitors, and moves the company closer to accounting methods used by international companies.
The move will have no effect on the company's cash, pension funding requirements, retiree pensions or the amount of underfunding for the pensions, said Steslicki.
Operating profit margins will also rise because of the change, including an increase to 7.1% for the first nine months, from 5.9%.
Profit margins in North America for the first nine months of 2015 will show a rise to 10.9% from 9.9%, and the company's full-year 2015 North American profit will rise about 1%, Rowley said.
Ford's pensions were underfunded by slightly less than $10 billion at the end of 2014, a figure Ford will update when it issues full-year and fourth-quarter results on Jan. 28. Ford's pensions were underfunded by $19 billion at the end of 2012.
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