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GM Shares Fall After Errors Prompt 2001 Restatement (Update4)

GM Shares Fall After Errors Prompt 2001 Restatement (Update4)

Nov. 10 (Bloomberg) -- Shares of General Motors Corp., the world's largest automaker, fell after the company said it will restate 2001 earnings because of accounting errors and quadrupled its second-quarter loss figure to $1.07 billion.

Profit in 2001 was overstated by as much as $400 million, GM said in a U.S. regulatory filing yesterday. The second- quarter revision arose from GM overestimating the value of its 20.1 percent stake in Japanese carmaker Fuji Heavy Industries Ltd. by 57 percent, according to a separate filing yesterday.

``The company is relying on significant supplier savings in their turnaround plan, and investors will have fresh questions about the feasibility of the company's $1 billion material cost savings goal in 2006,'' Deutsche Bank analyst Rod Lache said in a report today. ``This is clearly a bad situation, but maybe not as bad as it originally appears.''

GM has had four straight quarterly losses, the company's longest stretch without a profit in 13 years, and its U.S. shares are trading at a 13-year low. The automaker said last month it received subpoenas from the U.S. Securities and Exchange Commission concerning its reporting of pensions and other retiree benefits and its accounting transactions with suppliers.

The shares fell $1.29, or 5.2 percent, to $23.34 at 9:45 a.m. in New Stock Exchange composite trading. The stock, down 39 percent this year through yesterday, is at its lowest since 1992.

Bond Spreads

GM's 8.375 percent note due in 2033 fell 0.5 cent to 71.5 cents on the dollar, according to Trace, the bond price reporting service of the NASD. The bond's yield, which moves inversely to its price, rose 0.1 percent to 11.9 percent

GM previously reported 2001 net income of $601 million. The restatement for the period will occur when the company files its annual report for 2005, GM said.

The 2001 credits were for savings GM would receive from suppliers, spokeswoman Toni Simonetti said in an interview. They were booked for 2001 when they should have been booked in subsequent years, she said.

GM spokeswoman Gina Proia said credits came from ``several of our suppliers'' without identifying them.

``They booked credits from multiple suppliers, with cash tied to future business,'' Joseph Amaturo, an analyst at Calyon Securities USA Inc. in New York, said. ``They made a mistake. They booked all the credits when they received them instead of over the product lifecycle.

Delphi Corp., a former unit of GM, filed for bankruptcy protection last month, six years after being spun off from the automaker.

2005 Revision

GM in October said it was revising second-quarter results to reflect a change in the value of its Fuji Heavy stake. The company adjusted the stakes value down to $650 million from an estimated $1.5 billion previously.

That increased GM's net loss to $1.07 billion in the quarter, almost four times the loss of $286 million reported initially. GM's net loss per share for the period was $1.90, compared with a loss of 51 cents in its initial earnings report. So far this year, GM's losses total $3.81 billion.

Revenue for the second quarter was unchanged, and the adjusted earnings figure didn't affect cash flows from operating activities or the net change in cash and cash equivalents, GM said.

The U.S. company sold its entire stake in Fuji Heavy, the maker of Subaru-brand autos, on Oct. 5. Toyota Motor Corp., the world's second-largest automaker, agreed to buy 68 million Fuji shares directly from GM for about $315 million.

SEC Subpoenas

GM last month said the SEC had issued subpoenas involving financial reporting of pension and other retiree benefit programs; transactions between the automaker and Delphi; possible obligations to fund Delphi's pensions; and recovery of recall costs from suppliers and supplier price reductions and credits.

Watson Wyatt & Co., a Washington-based human-resources consulting firm, said in a separate filing yesterday that the SEC also issued it a subpoena related to the investigation of GM pensions and benefits. Watson Wyatt, GM's actuary, said it provided documents to the SEC.

Delphi

Delphi, the largest U.S. auto-parts maker, in March said it inflated earnings and cash flow after finding that rebates booked as one lump payment from suppliers should have been spread over several years.

The company in June reduced its 2001 retained earnings by $265 million after a probe of its internal accounting. The SEC has been investigating the Troy, Michigan-based company for much of this year, and the restatements cost the chief financial officer and four other executives their jobs.

The internal audit focused on how Delphi booked rebates from suppliers. It also probed accounting for $237 million in cash payments made to GM. Delphi made the payments to get a release from warranty claims and health-care obligations and $85 million in credits it received from GM.

General Motors in April said it properly accounted for transactions with Delphi.

Delphi, the largest U.S. auto-parts maker, in March said it inflated earnings and cash flow after finding that rebates booked as one lump payment from suppliers should have been spread over several years.

The company in June reduced its 2001 retained earnings by $265 million after a probe of its internal accounting. The SEC has been investigating the Troy, Michigan-based company for much of this year, and the restatements cost the chief financial officer and four other executives their jobs.

Internal Audit

The internal audit focused on how Delphi booked rebates from suppliers. It also probed accounting for $237 million in cash payments made to GM. Delphi made the payments to get a release from warranty claims and health-care obligations and $85 million in credits it received from GM.

General Motors in April said it properly accounted for transactions with Delphi.

The annual premium on GM's credit-default swaps rose in New York yesterday by $60,000 to a five-month high of about $ 1 million to insure $10 million of debt, according to JPMorgan Chase & Co. Default swaps on General Motors Acceptance Corp, the carmaker's finance unit, rose $25,000 to $300,000. The prices were unchanged in London today.

In a credit-default swap, the buyer pays an annual fee and gets paid the full amount insured if the borrower defaults. In return, the swap seller gets the defaulted loans or bonds. Swap prices typically decline when creditworthiness improves, and rise when it worsens.

To contact the reporters on this story:
Bill Koenig in Southfield, Michigan at [e-mail];
Alan Ohnsman in Los Angeles at [e-mail]


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