- Change to `mark-to-market' adds $1.5 billion to pretax profit
- Automaker says move will provide clearer view of operations
Ford Motor Co. is changing how it accounts for its huge pension obligations, providing quicker recognition of changes in its retirement liabilities that will boost its 2015 pretax profits by $1.5 billion.
The change to so-called mark-to-market accounting “will show that our operating results were even stronger, particularly in North America and Europe,” Chief Financial Officer Bob Shanks said in a statement. “The change better aligns our operating results with our operating cash flow and makes our results more comparable to our major competitors.”
Ford increased its forecast for 2015 pretax profit to a range of $10 billion to $11 billion from a previous prediction of $8.5 billion to $9.5 billion. Ford is restating its financial results for the past five years as part of the move. As a result, global operating profit margin for the first nine months of last year grows to 7.1 percent from 5.9 percent. In North America, the company’s strongest region, margin improved to 10.9 percent from 9.9 percent during the same period.
To help reduce its obligations and improve its balance sheet, Ford has been putting billions of dollars into its global pension plans. The company has said that its $80.3 billion pension liability was underfunded by $9.8 billion at the end of 2014. Ford planned to put $1.1 billion into its funded pension plans last year, after contributions of $1.5 billion in 2014 and $5 billion in 2013. It plans to contribute $1.5 billion this year.
Ford is eager to rid its balance sheet of pension obligations that investors view as debts weighing on its credit rating and stock price. Through its contributions, investments and buyouts offered to more than 90,000 salaried workers in 2012, Ford has reduced risk by cutting its unfunded obligations.
The move, effective Dec. 31, allows Ford to book gains and losses in its pension plans in the year they occur, rather than spreading them over several years. Changes will be reported each year as a special item in the fourth quarter, beginning with last year’s results, which are set to be released Jan. 28. The move has no impact on its cash position, Ford said.