General Motors Corp., which has been losing billions of dollars, suffering a downgrade of its junk bonds, and facing an SEC probe into its accounting practices, has not been faring even as well as all that.
The auto giant disclosed late Wednesday that it will restate its 2001 results after discovering that it had overreported that year’s net income from continuing operations by between $300 million and $400 million — roughly 50 percent of its profits at the time — due to an accounting error. The company added that it will restate for subsequent periods but that those revisions are expected to be “immaterial to those financial statements.”
GM stated that it is continuing to conduct an internal review of supplier credits and their accounting treatment from 2000 through 2005. According to the company, GM erroneously recognized some credits as income in the year in which they were received rather than in the future periods to which they were attributable. The Securities and Exchange Commission has also been looking into this matter, the company acknowledged.
“The issue here was that we basically booked the income in the wrong period,” GM spokeswoman Toni Simonetti told The Wall Street Journal. “We’re going to restate it rather than taking it all in 2001. That income still exists. It’s not like that income shouldn’t have been booked, it just shouldn’t have been booked in all of 2001.”
Even so, GM’s share price slumped to a 13-year low. Also on Wednesday, Fitch Ratings downgraded GM’s issuer default rating and senior unsecured debt ratings to B-plus from BB. It also placed the company’s ratings on Rating Watch Negative pending developments in the financial and operating situation at Delphi.
The downgrade “primarily reflects concerns over further financial support and/or costs that GM may incur in order to ensure that Delphi is able to reach an agreement with the UAW,” wrote Fitch, in a statement. The ratings agency also expects that “negative cash flow through at least 2006 could be exacerbated by potential non-operating items that would reduce GM’s liquidity position and flexibility in undertaking any major restructuring program. A labor disruption at Delphi for any extended period would have an immediate impact on GM’s ability to operate and would quickly reduce liquidity.”