Management Accounting

SEC Probing Delphi Inventory Deals

Last month Delphi announced that certain prior transactions involving rebates, credits, and other payments from suppliers, as well as off-balance-s...
Stephen TaubApril 11, 2005

The Securities and Exchange Commission is probing the relationship between Delphi Corp. and turnaround firm BBK Ltd. as part of a wider investigation of Delphi’s accounting practices, according to The Wall Street Journal.

Last month Delphi announced that certain prior transactions involving the receipt of rebates, credits, and other lump-sum payments from suppliers, as well as off-balance-sheet financing of certain indirect materials and inventory, were accounted for improperly. As a result, the auto-parts maker overstated cash flow from operations in 2000 by about $200 million. In addition, improper accounting for rebate transactions resulted in the company’s overstating pre-tax income in 2001 by about $61 million.

At the time Delphi referred to three deals involving the sale to an unnamed party of $89 million of inventory that was repurchased in later periods, the Journal noted. BBK is that unidentified party, added the newspaper, citing people close to the investigation. The Detroit-area turnaround firm was founded in 1977 and employs “more than 100 professionals throughout the United States and Europe,” according to the company’s website.

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BBK founder and chief executive B.N. Bahadur acknowledged that his company has turned over some information to the SEC, according to the Journal, but added, “I really can’t talk about that because of what’s going on.” The newspaper reported that Delphi spokeswoman Claudia Baucus refused to discuss any third-party references or other vendor relationships.