Thursday, November 10, 2005
General Motors announced that it would have to restate its earnings for 2001, and possibly other years, because of problems with its accounting for certain credits from its suppliers. The SEC has been investigating GM and Delphi Corp., its former supplier subsidiary spun off from the company that recently declared bankruptcy, about their accounting for the credits. It appears the companies took inconsistent positions on the accounting for the credits, which had the effect -- not surprisingly -- of increasing GM's income and decreasing Delphi's expenses. Go figure. This isn't the only SEC investigation of GM, which is also one of the subjects of an inquiry into its accounting for pension and health care benefits, including whether the company manipulated its assumptions on those costs to -- once again -- increase its income and lower its pension expenses. A Wall Street Journal story (here) discusses the pension accounting investigation.
GM filed an 8-K (here) describing the current restatement:
[T]he review to date indicates that GM erroneously recognized some supplier credits as income in the year in which they were received rather than in the future periods to which they were attributable. Based on the information to date, GM currently estimates that its net income from continuing operations for 2001 was overstated by approximately $300 million to $400 million (or about 25% to 35%) due to this error. Accordingly, although the final restatement amounts have not yet been determined, GM has determined to restate its financial statements for 2001, and the restatement is expected to be material to the financial statements previously reported for that year. GM will also restate financial statements for periods subsequent to 2001 that may be affected by the erroneous accounting. However, the effect of any such restatement in subsequent periods is expected to be immaterial to those financial statements.
Investor Kirk Kerkorian, who has bought up a bit less than 10% of GM's shares this year, can't be very happy with this latest development as the company's stock has lost almost of third of its value in the past few months. That may be the least of the General's problems at the moment, however. (ph)