Ford (F) Accounting Charge May Add $13 Billion to Profit

In a filing this week, Ford (NYSE:F) said it may take an accounting charge this year which could end up adding as much as $13 billion to its profits.

This type of move typically is made when a company is confident in its performance.

Ford in the second half may eliminate from its balance sheet a valuation allowance held against deferred tax assets. The reserve was created in 2006 as Ford began four years of operating losses. Eliminating the allowance may add $10 billion to $13 billion to Ford’s net income this year, said Robert Willens, president of Robert Willens LLC of New York, a corporate tax specialist.

“This is a very positive statement from Ford,” Willens said. “If you take the radical step of eliminating your valuation allowance, then you’ve developed a high degree of confidence in your future profit-making ability.”

Ford, the only major U.S. automaker to avoid bankruptcy in 2009, revealed in its Feb. 28 10-K filing that its valuation allowance at the end of 2010 was $15.7 billion, one of the five largest among U.S. public companies, Willens said. Once a company believes it has entered a sustained period of profitability, it must remove the item from its books, he said.

“We have had a sustained period of profitability in our operations and if that continues, we would remove our valuation allowance,” John Stoll, a company spokesman, said today. “We’ve said we plan to deliver continued improvement this year in our pre-tax operating profit.”




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