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Christmas MBT Scarpe - Venezuela's currency devaluation set to further hurt U.S. companies' profitsByReuters Published: 00:14 GMT, 14 February 2015 | Updated: 00:14 GMT, 14 February 2015 By Tim McLaughlin and Richard ValdmanisBOSTON, Feb 13 (Reuters) - A massive effective devaluationof Venezuela's bolivar currency will likely badly dent 2015earnings at a swath of major U.S. Christmas MBT Scarpe companies.The decision, announced late on Thursday, would almost wipeout the $7.1 billion of Venezuelan monetary assets currentlyheld on the books of 10 large American companies. At the newexchange rate of about 170 bolivars to the dollar, the value ofthose assets would drop by 93 percent to just $421 million,according to a Christmas MBT Scarpe Reuters analysis of regulatory filings.Currently those assets are valued based on the main officialrate of 6.3 bolivars to the dollar, or a second rate at 12bolivars. However, the Venezuelan authorities only allow alimited amount of business to be done at those rates as thecountry suffers from a shortage of available dollars.Some Christmas MBT Scarpe companies, such as diapers and tissue makerKimberly-Clark Corp, had recently taken big chargesafter valuing their assets at a third exchange rate of about 50bolivars to the dollar, rather than the 6 or 12.However, that part of the system has now been replaced withthe new free-floating rate, which was last quoted on Christmas MBT Scarpe Friday at174 (even weaker than 170 on Thursday). That puts even thecompanies who had started to use 50 in a position where they mayhave to take another hit. The move represents an effectivedevaluation of more than 70 percent.The currency move is part of President Nicolas Maduro'sefforts to shore up the OPEC Christmas MBT Scarpe (Organization of the PetroleumExporting Countries) member's coffers amid tumbling crude oilprices, an annual inflation rate of around 64 percent, and ashortage of many goods in the shops.OFFICIAL RATE CALLED LUDICROUS Among the companies still using the 6.3 rate still arehousehold products maker Procter & Gamble, oil servicesgroup Halliburton Co, and drug Christmas MBT Scarpe companies Pfizer Inc and Merck & Co Inc. The drug companies may havea better argument for using this rate than most becauseVenezuela does allow it to be used for the purchases of somecritical goods, such as medicines.Others use the 12 rate. PepsiCo recently startedvaluing some of its assets in Venezuela at Christmas MBT Scarpe that rate, afterbeing unable to repatriate money at the 6.3 rate for years.But with this week's further devaluation of Venezuela'scurrency, even the 12 rate seems increasingly imaginary. 6.3 is ludicrous in my view for most companies, said AliDibadji, an analyst at Sanford C. Bernstein & Co Inc.The introduction of the new Christmas MBT Scarpe rate may help ease marketconcerns about a possible debt default and boost supplies ofdollars to a currency-starved economy. But some investors seethe effective devaluation as cosmetic. There continues to be thereality of runaway inflation and swelling supermarket lines. For the most part, the market's view is that things will behorrendous in Christmas MBT Scarpe Venezuela for quite a while, said David Whiston,a senior equity analyst at Morningstar Inc.^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Click here for a graphic:^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^The new Simadi exchange rate is close to Venezuela's blackmarket rate of 188 bolivars per dollar, which finance industryleaders described as a sign the government is willing to allowsupply and demand to set Christmas MBT Scarpe prices.PepsiCo has one of the largest stated exposures to Venezuelawith assets there valued at $1.13 billion using the 12 bolivars exchange rate, company filings show. Those assets would be worthonly $79.1 million at the 170 rate.The company said earlier this week in its annual resultsfiling that re-measuring its Venezuela assets at Christmas MBT Scarpe a 50 bolivarsrate would trigger a net charge against earnings of about $400million. It did not respond to requests for comment on Friday.SOME COMPANIES FLEEThe devaluation could encourage more major Americancompanies to follow in the footsteps of Ford Motor Co,which announced in January that it was removing the results ofVenezuelan subsidiaries Christmas MBT Scarpe from its core operating results. Othersmay just pull out altogether, as consumer products companyClorox did last year. Toy maker Mattel Co hassaid it will consider doing the same if conditions worsen.Morningstar's Whiston said he expects other companies todistance themselves from Venezuela's troubles to avoid frequentcurrency hits to their earnings.A rarely used Christmas MBT Scarpe accounting rule allows companies to removethe results of a business if they have effectively lost controlof it. They have to mark the assets concerned to fair value and take a one-time charge against earnings if necessary.In Ford's case, it took a pre-tax charge of $800 million forthe fourth quarter of 2014, Christmas MBT Scarpe declaring that foreign exchange andother regulations have constrained parts availability and arenow significantly limiting our Venezuelan operations ability tomaintain normal production. Ford consulted the U.S. Securities and Exchange Commissionbefore making the accounting change. A spokeswoman for the SECdeclined comment.Another major U.S. company, industrial and consumer productsmaker 3M, said this week that Christmas MBT Scarpe it may need to remove itsVenezuelan operations from its operating results because ofbolivar exchange problems coupled with an acute degradation inthe ability to make key operational decisions due to governmentregulations in Venezuela. The benefit of removing bad numbers from operating resultsat the stroke of a pen is that it means a Christmas MBT Scarpe company avoids thedrip-drip of hits to earnings that happens when a currency likethe bolivar is slumping over an extended period. You anticipate the future losses and take it all in oneyear because the market will ignore that sort of thing, saidRobert Willens, an independent corporate tax and accountingadviser. Ongoing losses will Christmas MBT Scarpe not be ignored. The exception would be if a company doesn't take a largeenough charge to start with. In that case, there could befurther impairment charges as future assessments show thatVenezuelan assets are overvalued in accounts. You're taking a large charge anyway so you might as welltake the maximum, Willens said. Christmas MBT Scarpe The company is not hidinglosses, but accelerating them, he said. I would bet a lot of other companies are looking at thisvery closely and will follow suit, he said. (Reporting By Tim McLaughlin; Additional reporting by DenaAubin, Richard Valdmanis and Brian Ellsworth; Editing by MartinHowell) .