Delphi Corp. CFO Alan Dawes quit his job Friday, after the audit committee of the suppliers board of directors said it had lost confidence in him.
Delphi also said Paul Free, its former chief accountant and controller, left the company, and John Blahnik, who had been vice president of Treasury, Mergers and Acquisitions and New Markets, had been reassigned to a non-officer position. It said Pamela Geller, 39, remains as treasurer.
And in a filing Friday with the Securities and Exchange Commission, Delphi said its internal review found that its cash flow from operations was improperly inflated by $200 million in 2000 by off-balance-sheet transactions. It also said pre-tax income was inflated by $61 million in 2001 by improper accounting for rebates from information technology suppliers.
Delphi said it will have to restate all of its financial reports from 2001 and later. It also said the investigation into improper accounting is continuing and warned that more problems may be found. It said it is continuing to cooperate with the Securities and Exchange Commission in the investigation.
The shakeup in Delphis financial offices comes just one week after CEO J.T. Battenberg III, 61, announced that he would retire later this year. Dawes, 51, had been considered a candidate to replace Battenberg.
Mr. Dawes agreed to resign after the audit committee expressed a loss of confidence in him, said Robert Brust, the outside director who chairs Delphis audit committee. Brust is CFO of Eastman Kodak Co.
Delphi said it was negotiating a separation agreement with Dawes and Free.
John Sheehan, 44, was named acting CFO. Sheehan is Delphis chief accounting officer and controller. Delphi said it would look at candidates within and outside the company for a permanent replacement.
Delphis audit committee detailed some of its findings in the SEC filing: It confirmed that rebates between Delphi and information technology suppliers had been inappropriately accounted for in financial statements. Also, Delphi said it had improperly recognized payments or credits from suppliers in a lump sum for future services, rather than spreading out the income as the services were performed. The company said it improperly deferred expenses for payments made for system implementation services in 2002 and 2003. The payments totaled $40.5 million, but $23 million should have been recorded as an expense when the service was performed, and not deferred. Delphi recorded $135 million for asset sales in 1999, and recorded pre-tax income of $60 million in 1999 and $16 million in 2000 for the deals. But the money should have been counted as a financing transaction because Delphi had an obligation to buy back the materials. In 2002 and 2003, Delphi bought back some materials but wrote off the cost of some of the buyback. In December 2003, Delphi put the remaining materials on its balance sheet with a liability to a third party. Three times, in late 2000, early 2001 and late 2001, Delphi made a total of four deals to sell inventory to a third party and later bought the inventory back. Delphi had accounted for the deals as inventory disposal, but should have treated it as a financing transaction. Flawed accounting for the deals means pre-tax income from 2000 should be reduced by $6 million and pre-tax income for 2001 should be increased by $6 million. Also, $200 million in cash flow from operations in 2000 should be reclassified as cash from financing activities. And cash flow from operations and cash used for financing in 2001 should be increased by $200 million each.
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