Already under the pressure of an SEC investigation into its accounting, beleagured automaker General Motors Corp. announced late yesterday — after the close of New York Stock Exchange trading — that it will restate financial results for 2001 by reducing income generated from accelerated booking of credits from suppliers. The amount of the write-down will be between $300 to $400 million, which represents about 50% of GM’s profit reported at the time. Although the announcement came after the close of trading, GM’s shares yesterday fell to their lowest level in almost 15 years (GM shares are down almost 40% this year) as GM attempts to endure the financial punches that are inevitably associated with losing almost $3 billion this year. Earlier posts on GM’s increasing problems are here.
GM did not disclose yesterday whether its restatement involved transactions with its former parts subsidiary, Delphi Corp. Earlier this year, Delphi disclosed it would need to restate results for several years after an internal investigation revealed improper booking of revenue from technology contracts and rebates that should have been spread over the life of contracts. The issue of how to book rebates and other credits from suppliers has tripped up several troubled businesses, including supermarket chain Royal Ahold NV and retailer Kmart Corp. Demanding credits from suppliers is a common practice in many industries, but if those credits are rebates related to larger orders from suppliers, they are supposed to be booked as income over time and not immediately.
In another ominous sign, GM disclosed in an SEC filing yesterday that it has withdrawn about $2 billion this year from a fund earmarked for paying hourly-wage and retiree employee health benefits to cover ongoing health-care costs as it continues “evaluating the need for additional withdrawals as the cost of health care continues to adversely affect GM’s liquidity.”
Sounding absolutely Enronesque, don’t you think?