Visteon Corp. has become the second big auto parts maker in as many weeks to disclose multiple accounting errors. And once again, rebates played a major role.
Visteon's improper accounting for items such as rebates from suppliers, tooling costs and retiree health care costs prompted it to reduce its earnings by a total of $132 million from 2000 through the third quarter of 2004.
Both Visteon and Delphi Corp. inflated earnings by prematurely recognizing revenue from contracts and rebates when they should have spread them over the life of the contract. Rebates theoretically reflect future price cuts promised over the years of a contract.
Visteon filed the restated reports after the stock market closed on Wednesday, March 16.
A week earlier, Delphi said improper reporting of rebates, credits or other payments from suppliers resulted in overstating cash flow from operations by $200 million in 2000 and $61 million in 2001.
The proper treatment of rebates - booked as an asset and recognized over the life of the contract - is so basic it could be part of a beginning accounting class, a consultant familiar with Visteon and Delphi says.
In both cases, the errors relative to revenue were not that much. But relative to income they were significant.
"It's not just a matter of cheating the shareholders," the consultant says. "The pressure on this industry is so great that it is causing good people to do bad things."
In a filing with the U.S. Securities and Exchange Commission, Visteon reported that it changed how it accounted for rebates from suppliers. It now accounts for the rebates as reductions to long-term assets, instead of reduction to expenses. The change added about $11 million to Visteon's expenses.
Visteon spokeswoman Kim Welch says a review of the company's audit committee found no evidence of illegal or fraudulent conduct.
Costs for tooling owned by Visteon are now counted as long-term assets, not receivables, according to the SEC filing. The change cut about $20 million from Visteon's earnings.
With the restated earnings, Visteon has lost a total of $3.19 billion since it was spun off from Ford in June 2000.
Visteon ranks No. 2 on the Automotive News list of the top 150 suppliers to North America with North American original-equipment automotive parts sales of $11.08 billion in 2003.
Dale Jewett contributed to this report