Discuss Detroit Archives - Beginning January 2006 More Problems for General Motors Previous Next
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Jiminnm
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Username: Jiminnm

Post Number: 340
Registered: 02-2005
Posted From: 68.35.85.184
Posted on Friday, March 17, 2006 - 1:41 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

GM is restating financials for 2000-2005, downward of course, due to "aggressive accounting." There 2005 reports will be delayed. Can anyone explain why Wagoner and his crew are still in charge, and why the Directors failed to notice this and all the other problems?

http://news.yahoo.com/s/nm/200 60317/bs_nm/autos_gm_dc
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Mattric43
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Username: Mattric43

Post Number: 4
Registered: 03-2006
Posted From: 12.15.7.70
Posted on Friday, March 17, 2006 - 2:06 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

I saw that on the news last night. I can't believe they are already down around 2 billion dollars for the year, especialy after cutting all of those jobs.
-Matt-
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Livernoisyard
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Username: Livernoisyard

Post Number: 304
Registered: 10-2004
Posted From: 69.242.223.42
Posted on Friday, March 17, 2006 - 2:15 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

GM wound up assuming the potential liabilities related to numerous Delphi workers - something that GM only did reluctantly. Had there been second-sourcing of Delphi-made critical parts in place, GM would have simply let Delphi worry about that. GM needs Delphi - for the present...
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_sj_
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Username: _sj_

Post Number: 1273
Registered: 12-2003
Posted From: 69.220.230.150
Posted on Friday, March 17, 2006 - 2:20 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)


quote:

I saw that on the news last night. I can't believe they are already down around 2 billion dollars for the year, especialy after cutting all of those jobs.




Becuase it is not enough, all those benefits changes and everything else is not enough to make them competitive. They along with many other leaders in this area do not have the guts to cut fat from all of the areas.
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Livernoisyard
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Username: Livernoisyard

Post Number: 306
Registered: 10-2004
Posted From: 69.242.223.42
Posted on Friday, March 17, 2006 - 2:33 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

After GM sells its GMAC and its lesser brands for cash - similar events which have been underway for a number of years already (Hughes, etc.), it should run out of cash sometime by 2008. Until then, its management is keeping it open and lit. In the meantime, they and its workers are getting paid.

Last summer, when GM's common was selling for around $31, $25 of that was atttributed to GMAC. Lately, it's been $20 to $22. So the market value of the rest of GM, at best, is probably some negative $3 or more (meaning, more negative). In other words, GM is already toast, according to the financial markets.

(Message edited by LivernoisYard on March 17, 2006)
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Track75
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Username: Track75

Post Number: 2254
Registered: 10-2003
Posted From: 12.75.20.86
Posted on Friday, March 17, 2006 - 3:39 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

This doesn't reflect well on the accounting staff but it's hardly a scandal, or some new revelation of operational problems.

The additional $2B loss they announced isn't something nefarious. $1.3B of it is the after-tax cost related to the anticipated though still undertermined costs of bailing out Delphi. It's proper accounting to reflect anticipated liabilities as accurately as possible so a revision, up or down, is the right thing for GM to do as they know more about the size of the liability. The estimated range increased from $3.6B - $12B to $5.5B - $12B; $1.3B is the after-tax value of the increase from $3.6B to 5.5B on the low end of the range.

Another part of the $2B are a $400MM increase in restructuring charges as they try to close plants and shed workers. The $400MM charge reflects their decision to recognize immediately headcount reduction costs that are incurred after the current UAW contract expires in 2007. Previously they only recognized the costs up until the 2007 contract expiration.

The final part of the $2B charge is a non-cash aftertax charge of $439MM relating to GMAC's commercial-finance business. GM decided to recognize the impairment of goodwill (an accounting term, not related to customer satisfaction). Previously they had decided not to recognize the goodwill impairment because they considered it a recoverable impairment that could be reversed. It decreases reported net income but doesn't affect cash flow.

The other changes for previous years are a mish-mash of timing issues which don't reflect well on the accounting staff but aren't material financially. Details:

quote:

GM erroneously recorded as a reduction to cost of sales certain payments and credits received from suppliers prior to the completion of the earnings process. GM has concluded that the payments and credits received were associated with agreements for the award of future services or products or other rights and privileges and should be recognized when subsequently earned. The effect of these errors was a reduction in pre-tax income of $26 million for 2004; an increase in pre-tax income of $7 million in 2003; a reduction in pre-tax income of $69 million in 2002; a reduction in pre-tax income of $405 million in 2001; and a reduction in pre-tax income of $52 million in 2000. After restatement, a deferred credit of approximately $548 million (pre tax) would exist as of Dec. 31, 2004, which will be recognized as a reduction of cost of sales in future periods.



In 2001, GM erroneously recorded, as a reduction in stockholders' equity, a $55 million pre-tax settlement with Delphi in the form of a credit to be used against amounts owed by Delphi to GM in relation to pension, Other Post Employment Benefits (OPEB), and other employment related benefits of former GM employees who had transferred to Delphi. This item will now be recorded as a warranty expense in that period.



In 2001, GM erroneously recorded $18 million of pre-tax expense related to a contract involving Delphi's Flint East, Mich., plant that has now been recorded as an expense in 2000.



GM erroneously calculated the anticipated effect of cost reduction initiatives on its expected healthcare cost trend rate for 2002 and, as a result, understated that rate. Accordingly, GM's other postretirement employee benefit (OPEB) pre-tax expense was overstated by $9 million in 2004 and understated by $51 million in 2003 and $30 million in 2002.



In 2000, GM erroneously recognized a $27 million pre-tax gain on disposal of precious metals inventory that has now been recorded as a financing transaction because GM had an obligation to repurchase the inventory in 2001.



For all periods, GM intends to record all other accounting adjustments it has identified that were not recorded in the proper period. The net effect of these other adjustments, net-of-tax, is currently expected to be an increase in net income of $10 million in 2004, an increase in net income of $64 million in 2003, a reduction in net income of $81 million in 2002, an increase in net income of $78 million in 2001, and a reduction in net income of $20 million in 2000.



GM has also determined that investors should not continue to rely on its previously filed financial statements for the first quarter of 2005 due to accounting errors resulting in an unfavorable impact on net income of $149 million, of which $107 million relates to accounting for vehicles on operating leases with daily rental car companies. GM's portfolio of vehicles on operating lease with daily rental car companies, which was impaired at lease inception, was prematurely revalued in 2005 to reflect increased anticipated proceeds upon disposal.


http://media.gm.com:8221/servl et/GatewayServlet?target=http: //image.emerald.gm.com/gmnews/ viewmonthlyreleasedetail.do?do main=589&docid=24262
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Livernoisyard
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Username: Livernoisyard

Post Number: 308
Registered: 10-2004
Posted From: 69.242.223.42
Posted on Friday, March 17, 2006 - 3:48 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

From my advanced accounting days at the U.of Wis, the prof - Tuttle - there who most CPA prospectives loved to hate for his unrelenting teaching style, declared that (accounting) goodwill was an accounting term for foolish (or failed) purchase.

Therefore, when goodwill is encountered in a firm's balance sheets, it meant that the firm engaged in a bad purchase of another business entity. Nothing of any real value...
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Dabirch
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Username: Dabirch

Post Number: 1424
Registered: 06-2004
Posted From: 208.44.117.10
Posted on Friday, March 17, 2006 - 4:05 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)


quote:

From my advanced accounting days at the U.of Wis, the prof - Tuttle - there who most CPA prospectives loved to hate for his unrelenting teaching style, declared that (accounting) goodwill was an accounting term for foolish (or failed) purchase.

Therefore, when goodwill is encountered in a firm's balance sheets, it meant that the firm engaged in a bad purchase of another business entity. Nothing of any real value...




Your professor Tuttle was not that smart. Good will is the variance between book value and purchase price. It, quite frankly means the potential future value attributed to the business that is priced into the stock.

There exists no transactions of anything material that is based upon book value (unless you are just buying assets).

You buy a stock, and the multiple to book value exemplifies future earnings prospects.

You buy a car, and you pay more than the raw materials components. That difference is nothing more than "good will" imparted upon the value of the design and assembly of the component parts.

Same thing with a the price to book value variance.
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Track75
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Username: Track75

Post Number: 2255
Registered: 10-2003
Posted From: 12.75.20.86
Posted on Friday, March 17, 2006 - 4:06 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

Livernoisyard, I completely disagree with that definition.

In the accounting world, goodwill is the difference between the purchase price of a company that's been acquired and that company's tangible net asset value on its books. Things of real value for successful companies like brand reputation (Apple, Lexus, Nike), quality of the workforce, intellectual property and the like aren't valued on the balance sheet but do have value for the company and hence, its acquirer.

The excess of purchase price over book value is called "goodwill" on the acquirer's balance sheet and is amortized over a number of years for accounting purposes.

If you acquired Microsoft, the book value of MSFT would include things like desks, computers, buildings. What makes MSFT valuable isn't their hard assets, it's their brand, their near monopoly in certain software categories, their employees' know-how and their global reach. Yet all those fall into the category of "goodwill".
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Rustic
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Username: Rustic

Post Number: 2204
Registered: 10-2003
Posted From: 130.132.177.245
Posted on Friday, March 17, 2006 - 4:42 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

you two can say that again ... :-)
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Livernoisyard
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Username: Livernoisyard

Post Number: 309
Registered: 10-2004
Posted From: 69.242.223.42
Posted on Friday, March 17, 2006 - 5:10 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

Goodwill as an intangible asset often can be worthless. As in most things, the purchased cost does not always equate to value. But now GAAP accounts for it better than in the past.

"Goodwill
From Wikipedia, the free encyclopedia


Accounting

Goodwill is also an important accounting concept that describes the value of a business entity not directly attributable to its tangible assets and liabilities.

For example, a software company may have physical assets of some desktop PCs, servers, office equipment etc valued at $1 million, but the company's overall value (including brand, customer, intellectual capital) is valued at $10 million. Anybody buying that company would show $10 million total assets comprising $1 million physical assets, and $9 million in goodwill.

However the value of goodwill is very difficult to assess especially in cases where personal contact is important. An accountant who sells his practice would not be able to guarantee that all of his clients would transfer to the buyer. When purchasing a business of this nature it is very important to be sure that provisions are made for an adjustment in the sales price after an initial trial period to see if the client base has eroded.

Goodwill is often included on a balance sheet as an asset, but its valuation may be suspected if supporting evidence like an independent survey is missing. Goodwill is forced onto the balance sheet when a company is purchased for more than the sum of the value of the assets of the company. The difference between the purchase price and the sum of the assets is by definition the value of the "goodwill" of the company.

For example:

* A quality provider of goods or services builds up a good reputation (IBM, L.L. Bean).
* A brand name controlled by the business becomes recognizable by a large part of the population (Tide, Cheerios).

Goodwill is no longer amortized under U.S. generally accepted accounting principles (GAAP). As of January 1st, 2005, it is also forbidden under International Accounting Standards. Goodwill can now only be impaired (impairment-only approach).

Since, in general, intellectual property (IP) is part of goodwill, one of the most important assets of knowledge-based companies does not appear at all on formal balance sheets. As for these companies it is the IP that generates profit, not the buildings or the cash they hold, this may lead to a misleading valuation, discouraging investors who do not understand the company's true value. However, as this intangible asset is hard to value in the first place, this is perhaps a good thing; over-valuation due to goodwill was one of the biggest factors of the dot-com bust.

There are many preferences to leaving goodwill unamortized and instead testing for impairment annually. First of all, when you are amortizing an intangible asset, you compare its fair value (often determined through present value of future cash flows) and its book value. While it is easy to grab the number for the book value of goodwill, it can be quite difficult to predict future cash flows associated with goodwill. For example if under the assumption that goodwill has an indefinite life, how can we come up with a limit of when those cash flows will cease. It is more appropriate to consider the business as a whole yearly. By first looking at the fair value vs. book value of the entire business, we can then better understand how to value goodwill."
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Spartacus
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Username: Spartacus

Post Number: 103
Registered: 07-2005
Posted From: 209.114.251.65
Posted on Friday, March 17, 2006 - 6:09 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

Your point being...?

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