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Tuesday, October 30, 2018
10-K/Q Section Text Change Detection

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We noticed this week that Kellogg has pulled out of Venezuela, the latest in a long list of companies bailing out of the country as its economy falls apart: hyperinflation, corruption, bureaucracy, and lately the seizure and nationalization of corporate resources there. (As soon as Kellogg bailed, government ministers said they would take over a cereal manufacturing plant Kellogg operated there.)

So we decided to take our text search capabilities out for another spin, to see what other companies are saying these days about their Venezuela exposure.

The search itself is simple. Go to our Interactive Disclosures page, decide what companies you want to search (upper left corner) and the search period (upper right corner) and then type “Venezuela” into the text field on the right-hand side. That’s pretty much it.

We searched for Venezuela disclosures made in first-quarter 2018 filings. Lots of items under “discontinued operations,” lots under “significant accounting matters,” and a liberal sprinkling of “foreign currency - inflation.”

Under U.S. accounting rules, countries with hyperinflation (defined as an inflation rate above 100 percent over a three-year period) require specialized disclosures. Companies working in those places need to describe how they are accounting for revenue and assets in those countries, given the rapidly fluctuating currency value.

For example, Kraft-Heinz included a note in its May 3 filing about how it calculates revenue from Venezuela (no easy task, giving the inflation there):

We have a subsidiary in Venezuela that manufactures and sells a variety of products, primarily in the condiments and sauces and infant and nutrition categories. We apply highly inflationary accounting to the results of our Venezuelan subsidiary and include these results in our consolidated financial statements. Under highly inflationary accounting, the functional currency of our Venezuelan subsidiary is the U.S. dollar (the reporting currency of Kraft Heinz), although the majority of its transactions are in Venezuelan bolivars…

The company then goes on to explain how it calculates foreign currency conversion in that country, a process mired in red tape and bureaucratic whimsy.

Helen of Troy Ltd. explained on April 30 how the devaluation of Venezuelan currency in 2016 pretty much wiped out the value of its investments there:

During fiscal 2016, as a result of a devaluation of the Venezuelan official rate, continued economic instability from declines in oil prices and the declaration of an economic emergency, among other factors, we discontinued the use of the official exchange rate and adopted a market-based exchange rate for the remeasurement of our Venezuelan financial statements. As a result, we recorded a charge of $9.57 million (before and after tax) from the re-measurement of our Venezuelan monetary assets and liabilities at February 29, 2016 at the new rate.

And Coca-Cola had this to say on May 1:

Venezuela has been designated as a hyperinflationary economy. We sell concentrate to our bottling partner in Venezuela from outside the country. These sales are denominated in U.S. dollars. We also have certain U.S. dollar-denominated intangible assets associated with products sold in Venezuela. As a result of weaker sales and the volatility of foreign currency exchange rates resulting from continued political instability, we recorded impairment charges totaling $20 million during the three months ended March 31, 2017…. As a result of these impairment charges and a subsequent impairment charge in 2017, the remaining carrying value of all U.S. dollar-denominated intangible assets associated with products sold in Venezuela is zero.

You can find lots of other similar disclosures yourself. Or if Venezuela isn’t your bag, this is a good example of how you can search for other countries that might be more relevant to companies you follow — Russia or Iran, for example, with the changing state of economic sanctions against them.

It’s all there in the data. Calcbench just lets you pull the insight out of the data with a few simple searches.

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