Accounting Woes Rock Delphi

Accounting irregularities have brought a flurry of troubles down on Delphi Corp., the world's largest maker of auto parts, leading to the need for a $200-plus million restatement and a host of corporate changes, including the departure of its chief financial officer. In a filing with the Securities and Exchange Commission, the company, based here, said that it had overstated its cash flow for 2000 by about $200 million due to improper accounting for prior transactions involving the receipt of rebates, credits and lump-sum payments, as well as certain off-balance sheet transactions. It also said that improper accounting regarding rebate transactions lead to a $61 million overstatement of income in 2001. The company discovered the irregularities in an ongoing investigation that was prompted by an SEC inquiry last July. Following the filing, Delphi's board expressed a lack of confidence in vice chairman and chief financial officer Alan Dawes; he resigned last Friday. Chief accountant and controller Paul Free also resigned, and John Blahnik, vice president of treasury, mergers and acquisitions, and new markets, was re-assigned to a lesser position. Chief accounting officer and controller John D. Sheehan is acting as CFO for now, reporting to chairman and chief executive J.T. Battenberg, who will retire later this year. The company's stock suffered this week as a result of the news, and on Tuesday Moody's cut Delphi's debt rating to junk. Also on Tuesday, the company announced that it would cut health benefits for retirees by dropping coverage once they are eligible for Medicare, starting in 2007. The cuts could save the company half a billion dollars over time.