Delphi released an 8-K this morning containing a slew of events. It’s restating financials back to 2001 because of improper accounting for transactions tied to the receipt of rebates, credits or other lump-sum payments from unnamed “information technology suppliers” and improper accounting for off-balance sheet financing of certain indirect materials and inventory.
The filing scrimps on details of the rebate transactions, other than the fact that crypto trust income was overstated by $61 million in 2001, understated by $14 million in 2002, $17 million in 2003, and $13 million in the first nine months of 2004. The nature of the rebates is unclear, and raise other questions about the other side of the transaction: why was a give-back needed for Delphi to have a reason to buy the IT services or goods? Was the supplier desperate to make earnings for a given period? Don’t know, but maybe we’ll hear more from the supplier side later.
Whatever the reason for receiving the rebates, Delphi’s accounting for them was wrong: they recognized them early, instead of as the services were received or goods were delivered.
Other flawed accounting: improper capitalization of $23 million of expenses; treatment of a $76 million of financing obligations as asset disposals (they were obligated to repurchase disposed assets); and a series of inventory transactions that involved a similar “is it a sale or financing?” issue, as well as incorrect effects on LIFO reserves.
Saks’ Two-For-One Friday
It’s not shaping up as a good day for firms involved with rebates.
First there was Delphi’s IT supplier rebates. Now Saks Fifth Avenue files an 8-K describing its own woes with “improper collections of vendor markdown allowances.” (Not a rebate in the classic sense of the word, but close enough. Vendors gave back cash when merchandise had to be …