Tuesday, May 09, 2006

GM's 1st quarter: From red to black

Tuesday, May 09, 2006

GM's 1st quarter: From red to black

Results should bolster expectations that restructuring by Wagoner is gaining traction

Christine Tierney / The Detroit News

General Motors Corp. revised its first-quarter results Monday from a preliminary loss of $323 million to a $445 million profit after changing the way it will record its obligations as part of a health care agreement struck with its workers last year.

The final figures, which show GM's first profit in six quarters, include other revisions, such as bigger gains on the sales of GM's holding in Japan's Suzuki Motor Corp. and a mortgage business, the company said in a statement.

While the $768 million adjustment to the bottom line is enormous, it will not provoke the concerns generated by recent earnings restatements at GM due in part to accounting irregularities, analysts said.

The results are more likely to bolster the company's claims that a restructuring undertaken by Chairman and CEO Rick Wagoner is gaining traction.

"The first quarter shows signs of progress for us," said GM spokesman Jerry Dubrowski.

GM said the U.S. Securities and Exchange Commission had agreed to the change in how the automaker will account for $3 billion in obligations undertaken as part of the health care deal.

In addition, GM told investors when it issued its preliminary first-quarter results April 20 that the final results would depend "on factors such as the final determination of the accounting treatment for the retiree health care settlement agreement."

As part of the deal, which entailed concessions from current and retired workers to help GM contain health care costs, the automaker agreed to pay $3 billion in three installments -- $1 billion this year, next year and in 2011 -- into an independent Voluntary Employee Benefit Association.

The SEC initially wanted GM to book $1 billion in the first quarter. "The accounting treatment that the SEC was proposing for the billion-dollar contribution was preposterous," said analyst David Healy at Burnham Securities. "It made no sense."

In its preliminary results, GM booked the $1 billion obligation on a pretax basis that showed up as a $681 million loss. "When that comes out of the first-quarter results, it pushes us from a loss position to a profit position," Dubrowski said.

GM will stick to the original timetable in making cash contributions to the fund, but it may now spread the cost evenly over seven years in its accounting, starting in the third quarter of 2006 when the changes in the health care benefits take effect.

"Due to the change in the accounting treatment of the UAW health care settlement, GM now expects approximately $4.5 billion of structural cost reductions to be realized during calendar year 2006, compared with $4 billion previously estimated," the company said.

GM also revised first-quarter results excluding special items to a $184 million profit from a preliminary loss of $529 million.

GM North America was still in the red, but the $462 million loss was narrower than the preliminary $946 million loss reported and less than a third of the $1.5 billion loss recorded in the first quarter of 2005.

The health care agreement, negotiated last October amid fears that the automaker might be headed toward bankruptcy, is expected to cut GM's annual costs by $3 billion on a pretax basis, before the contributions to the fund.

GM's final first-quarter results include a $372 million gain from the sale of most of its stake in Suzuki -- an increase of $55 million over the preliminary sale figure due to the yen's recent rise.

GM also revised the first-quarter results of its GMAC finance arm to reflect the tax impact of the sale of GMAC Commercial Mortgage. That boosted GMAC's earnings by $32 million above the preliminary figure, to $637 million.

For 2005, GM reported a loss of $10.6 billion, an increase of $2 billion over the original loss reported, after increasing charges to restructure its North American operations and support bankrupt supplier Delphi Corp.

GM, whose accounts have been under investigation by the SEC, also restated earnings for the five previous years recently after uncovering accounting errors.

The automaker's main problem has been an unrelenting slide in U.S. market share. It is closing 12 facilities by 2008 and eliminating up to 30,000 blue-collar jobs.

You can reach Christine Tierney at (313) 222-1463 or ctierney@detnews.com.


Post a Comment

<< Home