Things just seem to get worse for General Motors.
The company announced Tuesday that its financial statements from 2002 to 2004, as well as the first three quarters of 2005, “should no longer be relied upon” because the company misclassified cash flows from ResCap, a residential mortgage subsidiary of General Motors Acceptance Corporation (GMAC).
GM was already in the process, announced March 17, of restating its financials for 2000 through 2004 to correct a slew of accounting errors relating to operating leases, supplier credits, health-care cost reductions, and the discount rate used for its pension plan. At the time, however, the company said investors could continue to rely on financial statements from those periods. The cash flow misclassifications were announced in a separate filing from GM’s delayed annual report, which also was filed late Tuesday evening and included restated results for 2002 through 2004.
GM is not the first company with a captive finance arm to run into cash flow classification difficulties. The company said proceeds from sales and repayments related to certain mortgage loans, which initially were classified as mortgage loans held for investment and subsequently transferred to mortgage loans held for sale, were reported as operating cash flows instead of investing cash flows, as required by FAS 102. GMAC also said that certain non-cash proceeds and transfers were not appropriately presented in the cash flow statements.
GM said the misclassification does not affect total cash and cash equivalents reflected in previous cash flow statements, nor does it affect the income statement, balance sheet, or stockholder’s equity for GM, GMAC or ResCap for the periods in question. However, the restatement adds a degree of uncertainty to GM’s pending sale of a 78 percent stake in GMAC to an investor group of Kohlberg Kravis Roberts & Co., Five Mile Capital Partners LLC and Goldman Sachs Capital Partners. In the filing, GMAC warned that it might not be able to sell a majority stake in its operations, noting, “We are uncertain at this time if any transaction with respect to us or ResCap will occur.”
Earlier in the day, GM said it would lay off hundreds of employees.