Risk Management

SEC Seeks Facts on GM Forex Accounting

The matter concerns the auto maker's foreign exchange and commodities accounting under Financial Accounting Standards Board hedging strictures.
Stephen TaubMay 24, 2007

The Securities and Exchange Commission has asked General Motors for details about the company’s accounting for certain foreign-exchange contracts and commodities in its restatement of its previously filed financials.

The matter concerns GM’s forex and commodities accounting under amendments to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. In an 8-K filing, the struggling auto giant reported that it would continue to cooperate with the SEC and is preparing to provide the information the commission requested.

Further, GM reported that GMAC, its financing arm, has received a letter from the SEC’s corporate finance division regarding GMAC’s hedging relationship testing methodologies and its consideration of credit ratings in assessing hedge effectiveness. GM said that GMAC pledged to continue to work with the SEC. The auto maker warned, however, that a negative outcome on GMAC’s issued could require the parent company to restate previous financials. Last month, GM sold a 51 percent stake in GMAC to an investor group led by Cerberus Capital Management LP.

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The auto company also reported in the filing that it now estimates that its contingent exposure related to Delphi–which is trying to emerge from bankruptcy–is about $7 billion. It previously disclosed a range between $6 billion and $7.5 billion.

The company elaborated that it expects to reimburse Delphi for certain labor costs with an initial payment of up to $500 million when the auto-parts maker emerges from bankruptcy. GM will also provide yearly labor-related payments of between $300 million and $400 million and annual transitional payments of about $100 million. “The total amount of the contingent liability and the specific amounts and periods that such subsidies would be paid, are still subject to negotiation,” the company stated.