GM restates earnings, widens losses

[nodoodahs]

http://biz.yahoo.com/ap/051110/gm_finances.html?.v=2

"GM plans to issue the restated earnings for 2001 and any subsequent years before it issues its 2005 annual report next year."

"The review indicates GM erroneously booked the supplier credits as income in the year they were received rather than to future periods, GM said.

GM filed its statement Wednesday evening after the markets closed. The audit committee of GM's board warned investors not to rely on GM's financial statements for 2001."

From my Nov 3 commentary at MarketThoughts:
"The increase in AR as a percent of sales is classic, it's indicative of their “zero down” and “zero interest” plans, which started high gear in late 2001. When a company starts aggressively booking sales as sales, even though they haven't received payment yet, is that a good thing?"
_________________
I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[HenryTo]

Just in case anyone missed this last Thurday. Notable quote: "The news prompted Banc of America Securities to raise its odds of a GM bankruptcy over the next two years to 40 percent from 30 percent."
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GM's long bonds hit record low on strike fears
Thu Nov 10, 2005 3:59 PM ET

By Dena Aubin

NEW YORK, Nov 10 (Reuters) - General Motors Corp.'s benchmark long bonds fell to their lowest levels ever on Thursday as the automaker faced an onslaught of bad news, including worries about a damaging strike at its main supplier.

Yields on some GM <GM.N> bonds topped levels typically seen on debt with deeply speculative "CCC" ratings, a sign investors see growing risks that GM ultimately may not be able to make good on all of its debt.

"It probably won't be long before people really start thinking about recovery values for GM bonds," said Dan Zaldivar, fixed-income analyst at RBC Dain Rauscher in Chicago.

Recovery values refer to the amount of a bond's original value that investors receive when an issuer defaults.

Worries about GM's future mounted this week as analysts speculated that the automaker would quickly burn through its cash reserves if a strike at its supplier, Delphi Corp. <DPHIQ.PK> brought GM's operations to a standstill.

Concerns were heightened when GM announced late on Wednesday that it will have to restate financial results for 2001. The news prompted Banc of America Securities to raise its odds of a GM bankruptcy over the next two years to 40 percent from 30 percent.

STRIKE FEARS MOUNT

GM spokeswoman Toni Simonetti said GM is assessing several contingency plans in the event there is a supply disruption, but the company has no reason to believe there will be one.

"We've ... been assured by Delphi that they do not intend to interrupt supply to General Motors and we believe them," she said. She said GM is working on several initiatives to turn around its North American operations, but bankruptcy is not one of the options.

Some analysts had warned this week that a Delphi strike could virtually shut down GM's North American assembly operations, meaning cash would flow out with no revenue coming in.

"If this were to occur, we estimate that GM would burn through the $19 billion in cash and liquid assets on its automotive balance sheet in about 10 weeks," UBS said in a report on Tuesday.

GM's Simonetti said those calculations were "highly speculative."

GMAC SALE A CONCERN

Two ratings agencies slashed GM's ratings to the single-B level this month, the middle range of junk territory. But GM's bonds are trading as if investors think worse is to come.

GM's bonds with an 8.375 percent coupon due in 2033 fell to 69.5 cents on the dollar, the lowest since they were issued in July 2003. They later recovered to 71.5 cents, about 1/2 cent lower on the day, according to MarketAxess.

Yields on GM's 7.7 percent bonds due in 2016 surged to 9.04 percentage points more than Treasuries, up from 8.25 percentage points on Tuesday, the last previous trade, according to MarketAxess. By comparison, bonds with "CCC" ratings, one of the lowest junk grades, yield about 7.5 percentage points over Treasuries on average, according to Merrill Lynch.

"I guess the market assumes that single-B is not the end," said Thomas Eggenschwiler, co-head of research at hedge fund Aladdin Capital in Stamford, Connecticut.

GM's bonds are also coming under pressure from investors switching from the automaker's debt into bonds of its finance arm, General Motors Acceptance Corp., said Mirko Mikelic, portfolio manager and analyst for Fifth Third Asset Management.

Investors expect GMAC to regain investment-grade ratings thanks to GM's plans to sell a controlling stake in the finance unit. But the sale has raised worries about GM's future without its profitable finance arm, Mikelic said.

"They've been making money on the financing side of the business, but as a stand-alone company making automobiles, GM has been losing money hand over fist these last few years," he said.