Regulation

GenTek Reports Cash-Accounting Slipup

The chemical company will restate two 10-Qs because it should have used accrual accounting for its capital expenditures.
Sarah JohnsonAugust 17, 2007

GenTek Inc. will restate two quarterly reports to fix a classification error in its cash-flow statement. The company had been incorrectly accounting for capital expenditures on an accrual basis.

The chemical company had delayed filing its financial statements for the second quarter, which were due on August 9. It has since determined it will restate its quarterly reports for the periods ending March 31 and June 30 “as soon as practical,” it announced Friday.

GenTek had been recording capital expenditures when it acquired the legal title to property, plant, and equipment rather than when it actually paid for the items that fall under that category. This timing error runs afoul of FAS 95, the seminal cash-flow accounting standard, which calls for companies to record costs for capital expenditures within the cash flows from investing activities when they are paid. The company also should have disclosed its unpaid portion of these transactions — a total of $3,362 — as a noncash investing activity in the supplemental disclosure section of cash-flow information, GenTek acknowledged.

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The company will also make corrections to adjust record-keeping regarding long-term debt amounts related to its revolving credit facility. Its cash-flow statement for the quarter ending March 31 should have included proceeds from the facility of $22,500, repayment of $20,500, and a reduction of long-term debt issuance of $2,000. In addition, GenTek will fix an immaterial error in how it applied accounting rules for retirement plans.