SAN FRANCISCO (AFX) -- General Motors Corp. stock fell Wednesday after the company said it would restate financial results for financing arm General Motors Acceptance Corp. from 2003 through the third quarter of 2005.
Shares of the Dow industrials component ended down 2.6% to $22.15.
Late Tuesday, the No. 1 automaker filed a delayed 2005 annual report with the Securities and Exchange Commission.
The restatement aims to tidy up bookkeeping problems at GMAC that might otherwise scuttle Detroit-based GM's ongoing efforts to raise much-needed cash by selling a majority stake in the financial unit.
It is also an attempt to ease mounting pressure on GMAC's credit rating that, if left unchecked, the company warned could 'jeopardize our ability to continue operations.'
For Deutsche Bank, the filing cast a shadow over prospects for a sale of GMAC.
'Perhaps the greatest concern is the uncertainty surrounding the sale of [a] majority stake of GMAC,' wrote Deutsche Bank analyst Rod Lache in a research note.
Junk rating
GM last year saw its corporate credit rating reduced to 'junk' status amid mounting losses and shrinking market share.
The move was expected. The auto giant had warned March 16 that it would restate financial results after an internal investigation found problems with the accounting for cash flows from Residential Capital Corp., the mortgage unit of GM's financial subsidiary.
'We became aware of some of the erroneous classification, and as soon as we did, we moved to correct it,' said GM spokesperson Gina Proia. 'We are convinced that we have corrected the errors and that's reflected in all of our filings.' -
Failure to file the annual report before the end of the month could have further crippled the company by violating the terms of at least $30 billion in corporate GM bonds.
GM said that the restatements change what had been incorrectly reported as operating cash flow on some ResCap mortgages to investing cash flow.
The revisions do not affect the consolidated income statements for GM, GMAC or ResCap; their balance sheets; or net cash flows for any of the reporting periods in question. Nor do they affect cash flows reported for GM's automotive operations.
Risk factors
David Healy, analyst at Burnham Securities, downplayed the restatements except to say General Motors may be prepping its financing arm for suitors.
'This is just a minor bookkeeping adjustment that people are only paying attention to because GM is in the news,' he said. 'Still, it may clear the way for the final negotiation of the GMAC sale.'
Proia said there's nothing new to report on a GMAC transaction.
GM itself warns in its 10-K that it might not be able to offload a controlling interest in GMAC or to restructure ResCap. It adds that 'even if a third party acquires a controlling interest in GMAC, or if a transaction is completed with respect to ResCap, there is the possibility that these initiatives will not delink GMAC's credit rating from GM's credit rating or maintain ResCap's credit rating at investment grade.'
Without a GMAC strategic transaction, the financing unit's access to capital may be 'seriously constrained' and its cost of funds may increase, GM said. 'Uncompetitive funding costs may result in a lower return on capital and significantly lower earnings and dividends,' the company said.
Deloitte & Touche LLP, GM's auditor, said in the 10-K filing that it agreed with the automaker that there was a 'material weakness' in the company's accounting that led to the cash-flow restatement.
GM said it 'is in the process of remediating this material weakness through the design and implementation of enhanced controls to aid in the correct preparation, review, presentation and disclosures of our consolidated statement of cash flows.'
SEC looks at metals deals
At the same time, GM's 2005 10-K reported that the SEC has opened an investigation of its precious metals transactions.
Spokesperson Proia said the investigation was opened 'recently' but declined to comment beyond saying that the company was fully cooperating with the SEC.
The flurry of filings came after GM earlier Tuesday said it's laying off hundreds of white-collar workers, its latest step in an ongoing overhaul of its money-losing North American auto operations.
Earlier this month the company revised its overall loss for 2005 to $10.6 billion, $2 billion more than the $8.6 billion loss it reported in its preliminary 2005 results in January.
GM has also offered buyouts to about 113,000 of its union workers in a bid to whittle down its work force by some 30,000 and ease the heavy cost of benefits and pensions weighing on the company. This story was supplied by MarketWatch. For further information see www.marketwatch.com.
Shares of the Dow industrials component ended down 2.6% to $22.15.
Late Tuesday, the No. 1 automaker filed a delayed 2005 annual report with the Securities and Exchange Commission.
The restatement aims to tidy up bookkeeping problems at GMAC that might otherwise scuttle Detroit-based GM's ongoing efforts to raise much-needed cash by selling a majority stake in the financial unit.
It is also an attempt to ease mounting pressure on GMAC's credit rating that, if left unchecked, the company warned could 'jeopardize our ability to continue operations.'
For Deutsche Bank, the filing cast a shadow over prospects for a sale of GMAC.
'Perhaps the greatest concern is the uncertainty surrounding the sale of [a] majority stake of GMAC,' wrote Deutsche Bank analyst Rod Lache in a research note.
Junk rating
GM last year saw its corporate credit rating reduced to 'junk' status amid mounting losses and shrinking market share.
The move was expected. The auto giant had warned March 16 that it would restate financial results after an internal investigation found problems with the accounting for cash flows from Residential Capital Corp., the mortgage unit of GM's financial subsidiary.
'We became aware of some of the erroneous classification, and as soon as we did, we moved to correct it,' said GM spokesperson Gina Proia. 'We are convinced that we have corrected the errors and that's reflected in all of our filings.' -
Failure to file the annual report before the end of the month could have further crippled the company by violating the terms of at least $30 billion in corporate GM bonds.
GM said that the restatements change what had been incorrectly reported as operating cash flow on some ResCap mortgages to investing cash flow.
The revisions do not affect the consolidated income statements for GM, GMAC or ResCap; their balance sheets; or net cash flows for any of the reporting periods in question. Nor do they affect cash flows reported for GM's automotive operations.
Risk factors
David Healy, analyst at Burnham Securities, downplayed the restatements except to say General Motors may be prepping its financing arm for suitors.
'This is just a minor bookkeeping adjustment that people are only paying attention to because GM is in the news,' he said. 'Still, it may clear the way for the final negotiation of the GMAC sale.'
Proia said there's nothing new to report on a GMAC transaction.
GM itself warns in its 10-K that it might not be able to offload a controlling interest in GMAC or to restructure ResCap. It adds that 'even if a third party acquires a controlling interest in GMAC, or if a transaction is completed with respect to ResCap, there is the possibility that these initiatives will not delink GMAC's credit rating from GM's credit rating or maintain ResCap's credit rating at investment grade.'
Without a GMAC strategic transaction, the financing unit's access to capital may be 'seriously constrained' and its cost of funds may increase, GM said. 'Uncompetitive funding costs may result in a lower return on capital and significantly lower earnings and dividends,' the company said.
Deloitte & Touche LLP, GM's auditor, said in the 10-K filing that it agreed with the automaker that there was a 'material weakness' in the company's accounting that led to the cash-flow restatement.
GM said it 'is in the process of remediating this material weakness through the design and implementation of enhanced controls to aid in the correct preparation, review, presentation and disclosures of our consolidated statement of cash flows.'
SEC looks at metals deals
At the same time, GM's 2005 10-K reported that the SEC has opened an investigation of its precious metals transactions.
Spokesperson Proia said the investigation was opened 'recently' but declined to comment beyond saying that the company was fully cooperating with the SEC.
The flurry of filings came after GM earlier Tuesday said it's laying off hundreds of white-collar workers, its latest step in an ongoing overhaul of its money-losing North American auto operations.
Earlier this month the company revised its overall loss for 2005 to $10.6 billion, $2 billion more than the $8.6 billion loss it reported in its preliminary 2005 results in January.
GM has also offered buyouts to about 113,000 of its union workers in a bid to whittle down its work force by some 30,000 and ease the heavy cost of benefits and pensions weighing on the company. This story was supplied by MarketWatch. For further information see www.marketwatch.com.