Nov 16

Op-Ed: GM Reports a $1.2 Billion Loss, but Has the Cash To See Volt Well into Production and Beyond

 

gm-q3

[ad#post_ad]General Motors reported today that it lost $1.2 billion in the period since exiting bankruptcy on July 10th, and also said it will begin to repay government loans early, starting next month.

Overall, there was not a lot to hang your hat on in this update if you consider yourself a defacto shareholder of ‘new’ GM, but if you were concerned that GM may not have deep enough pockets to someday see the Chevy Volt roll onto your driveway, today is a good day.

GM had a consolidated $42.6 billion in cash (including $17.4 billion in government escrow accounts) at the end of the quarter, leaving even the most unoptimistic of forecasters to come to the conclusion that GM is not going away anytime soon. So put your Volt deposits down with confidence, your Volt is coming. (Unless of course your local dealer is Maxton Chevrolet in Ohio, who is taking deposits and is not yet a approved retailer)

GM CEO Fritz Henderson had this to say about his company’s first 83 days of operation:

“We have significantly more work to do, but today’s results provide evidence of the solid foundation we’re building for the new GM. With a healthier balance sheet and a competitive cost structure, our focus is on driving top line performance. We’ll achieve that by winning customers over, one at a time, with vehicles that deliver performance and value.”

If you only want to hear good news, I would encourage you to stop reading at this point…or at least skip down to the last paragraph.

It is worth noting that this update is not a official filing, and with an understanding from the SEC to complete its Fresh Start reporting by March 31, 2010, this report leads out with the disclaimer that “the managerial financial statements do not comply with Generally Accepted Accounting Principles (GAAP)…” /yuck

Basically this means, ‘everything we say, you have to take with a grain of salt.’ Which also means, we are forced to dig a little deeper to understand the situation at GM. Namely the same two questions everyone always wants answered; how much cash do they have now, and how fast are they burning it?

So how much Cash Do they Really Have?
Looking closer, we find that the $42.6 billion was only a snapshot on Sept 30th, and that escrow account has nowhere near $17.4 billion of accessible cash at this moment. $2.8 billion has gone to Delphi, almost a billion to Canadian pensions, and another 8.1 billion is earmarked to repay UST (US Treasury) and EDC (Export Development Loans), which leaves only $5.6 billion unspoken for.

And yes, the money that GM is ‘repaying’ is coming out of that same government escrow account that was just set up. /beauty

Additional pressure already being felt on GM’s cash situation since this update is the forced repayment of the German government’s interim loan from the Opel ‘non-sale,’ of which about $700 million has been repaid since September, and another $600 million is due by month’s end. Operational shortfalls at Daewoo has also cost the mothership north of $400 million, and threatens to drain more.

Realistically, accessible cash on hand at this moment is more than likely around $28 billion…which is still a very high/adequate level. The biggest ongoing threat to this reserve is the cost associated with retaining Opel if GM can not receive more international aid. GM estimates the restructuring costs for Opel at around 3 billion euros ($4.4b)…some independent analysis puts that figure as high as €10B.

On the very last line of the press release, I think GM does a good job of assessing the situation, without giving any specific estimates, “…global cash balances at the end of 2009 are expected to be materially lower than third quarter levels of $42.6 billion.”

What is the Cash Burn Rate?
Short and sweet answer is we have no clue. Without a GAAP report and a couple historical statements under GM’s belt to make time comparisons, it is impossible to say.

According to GM, they report that “for the period July 10-Sept. 30, GM had positive managerial operating cash flow before special items of $3.3 billion, reflecting the favorable working capital impact from production start up, timing of supplier payments and lower capital spending.”

Which basically means, a perfect storm of things happened to overinflate this number. In the ‘looking ahead’ section of its report, GM admits it “expects to have negative net cash flows in the fourth quarter of 2009 due to a number of factors…” /they don’t know either

Overall Thoughts
All things considered it was a pretty good first report, about as decent as it could be anyway. The plan to overproduce vehicles under the threat of bankruptcy (peaking at 872K units at end of 2008), then sell the bulk of them to increase liquidity post C11 (down to a low of 379K in August) was by far their best forward looking move in a long time.

While the sales since the bankruptcy have continued to be poor (as it has been throughout the industry…forgetting Hyundai for the moment), the ongoing operating losses may be a by-product of huge incentives on the hoods of GM cars, put there to reduce/monetize the massive stockpile of 2009 inventory they had produced. The remaining question is, will customers that have grown accustom to such deep discounts, still purchase GM cars in their absence?

Given that GM has achieved a 75% reduction in structural costs, a clean balance sheet, and now has a ample money supply coming out of C11, they have a once in a lifetime opportunity to right the ship…and because the success of the Volt, and possibly the future of domestic EV production itself lies with GM, I hope they succeed.

This entry was posted on Monday, November 16th, 2009 at 7:02 pm and is filed under Financial. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

COMMENTS: 57


  1. 1
    Student

     

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    Nov 16th, 2009 (7:11 pm)

    Let’s hope they make it out okay. I think they’ve done a really good job of restructuring, and they are really starting to make good products. I see them pulling through, but the ramifications of bankruptcy will stay for quite a while, especially while the market remains poor. We just got word their intern program is a go for this year so things can’t be too bad. Glad to see they are investing in a good solid future. I think GM needs some fresh blood and there are a lot of emerging technologies in EVs and batteries that can benefit GM.


  2. 2
    Loboc

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    Nov 16th, 2009 (7:15 pm)

    Darn, I kept reading down to the bottom line. Which is: Nobody knows what GM’s financial situation is.


  3. 3
    Van

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    Nov 16th, 2009 (7:17 pm)

    “I hope they succeed.” And so does America. :)


  4. 4
    Ed M

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    Nov 16th, 2009 (7:34 pm)

    The only way GM is going to see the light of day is for the union to collapse. When GM lays off workers to save money, these workers still get 95% of their wages. That coupled with overly generous retirement packages makes the situation ridiculous. All the former CEO’s at GM should hang their heads in shame for having signed the collective agreements with the Union.
    What they’ve got is an ex parts man from the Union running the whole show at the Detroit 3.
    What is needed is the government to step in and take away some of the Unions power but that will never happen.


  5. 5
    LeoK

     

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    Nov 16th, 2009 (7:41 pm)

    Nice graphic:-)

    “Overall Thoughts
    All things considered it was a pretty good first report, about as decent as it could be anyway. The plan to overproduce vehicles under the threat of bankruptcy (peaking at 872K units at end of 2008), then sell the bulk of them to increase liquidity post C11 (down to a low of 379K in August) was by far their best forward looking move in a long time.”

    If you stop and consider that OLD GM captured the ‘sale’ of produced units when they were shipped to dealers earlier in the year, and that NEW GM has had to shoulder the funding of incentives to clear them out of inventory since emerging from BK, the results don’t seem so bad. The NEW GM is still ramping up production – and the company has several new models that are WHITE HOT in the marketplace – led by the new Chevy Equinox. Other models like the Chevy Camaro, Cadillac CTS, etc, continue to sell well. I don’t have the exact numbers, but my guess is that NEW GM has had to fund incentives on more vehicle sales than they have captured via building new vehicles and selling them to dealers.

    If the NEW GM can learn to better align production with demand on a model by model basis (more flexible union work rules achieved prior to and during BK should help here), they will begin producing much improved financial results. It doesn’t take a rocket scientist to figure out if you build product that consumers want to buy, and you price it competitively within the marketplace, that financial success will follow.

    The VOLT may well be timed as to provide the tipping point GM needs to get completely over the hump. I believe the company is on the way, but the heavy lifting is not over yet.

    Let’s get the VOLT on the road! Go GM. Go VOLT. Bring it on!!!


  6. 6
    LeoK

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    Nov 16th, 2009 (7:44 pm)

    Ed M: The only way GM is going to see the light of day is for the union to collapse. When GM lays off workers to , these workers still get 95% of their wages. That coupled with overly generous retirement packages makes the situation ridiculous. All the former CEO’s at GM should hang their heads in shame for having signed the collective agreements with the Union.What they’ve got is an ex parts man from the Union running the whole show at the Detroit 3.What is needed is the government to step in and take away some of the Unions power but that will never happen.  (Quote)

    Ed M – I am the furthest person you’ll find from a pro-union guy, but your comments are very dated. The Union has accepted significant changes to their contracts over the past few years – much of which surround work rules and the elimination of the ‘job bank’ which caused huge issues for GM over the years. Agreed that in hindsight, some of the contracts signed by GM executives in the past were time bombs waiting to go off – and this past year they did.

    However, the line workers that build GM vehicles today are doing a great job – the quality is exceptional – and if you don’t believe me stop and drive a new Chevy Malibu, Equionx, Camaro or Traverse.


  7. 7
    omnimoeish

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    Nov 16th, 2009 (7:54 pm)

    Interesting. GM has been doing ok internationally actually with Chinese sales at 478,000 this quarter. I thought it’s funny how GM is going to pay back the US government. Ahhh, isn’t that all warm and fuzzy The Fed just digitally fabricated $55 billion, gave it to GM as they walk out the doors of bankruptcy having given the finger to creditors holding approx. $90 billion worth of GM’s debt. That’s on top of the $37 billion or whatever it was that GM got under the Bush administration from TARP funds and GMAC.

    Then they say, “need to help out Delphi? pay Canadian pension funds? want to keep Opel?, hey while we’re at it, let’s just say you owe us …oh…let’s just say…$6.7 billion, and we’ll fabricate another $17.4 billion and give it to you so you can ‘pay us back’ and pay for everything else that you need. Then you can tell the public that you’ve paid us back and then they won’t be so sore about you needing a bail out because you built crappy cars and pushed SUVs.”

    But that’s why they’re keeping a lid on their accounting situation, so that the fed can give them more money as needed until they go public.

    It’ll be interesting to see how much money the government will get in the New GM IPO.

    Frankly with GM’s decent vehicle sales, cash for clunkers, almost no debt, UAW concessions, and lay offs, along with their strengthening international sales, I’m surprised they’re not doing better than they are. Chrysler has been having sales completely implode and they are still making money.

    As for if people will ever buy GM made vehicles at full price after having been so spoiled by cash on the hood, 0% financing and all, I think it will take a long time. The competitors are too good unless they’re selling a car that no other auto maker has such as the Volt, I don’t know if I would go with GM unless it was seriously discounted. I think GM has realized this.

    I read an article the other day about how GM’s bureaucracy, which was legendarily massive, has been lightened to about half of what is was and the younger managers are getting a lot more clout to make decisions and speak up about what needs to be improved upon, not just silenced or forced to get an act of congress to make a decision. This not only helps lower the burden costs of the vehicles, but also helps GM adapt more quickly to market swings which is what they badly need since they have seemed to be a generation behind the competitors. Great example was pushing back the release of the Cruze until they could get the engine to run quieter and a few other things.

    All in all, I agree, I hope they succeed, and so does America.


  8. 8
    Jackson

     

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    Nov 16th, 2009 (8:06 pm)

    I knew you couldn’t sit on that story, statik; thanks for dropping by.

    Is that a note (however small) of optimism?! Next thing you know Tagamet will drop by to sulk. ;-)


  9. 9
    statik

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    Nov 16th, 2009 (8:09 pm)

    LeoK: Nice graphic:-)“Overall ThoughtsAll things considered it was a pretty good first report, about as decent as it could be anyway. The plan to overproduce vehicles under the threat of bankruptcy (peaking at 872K units at end of 2008), then sell the bulk of them to increase liquidity post C11 (down to a low of 379K in August) was by far their best forward looking move in a long time.”If you stop and consider that OLD GM captured the ’sale’ of produced units when they were shipped to dealers earlier in the year, and that NEW GM has had to shoulder the funding of incentives to clear them out of inventory since emerging from BK, the results don’t seem so bad. The NEW GM is still ramping up production – and the company has several new models that are WHITE HOT in the marketplace – led by the new Chevy Equinox. Other models like the Chevy Camaro, Cadillac CTS, etc, continue to sell well. I don’t have the exact numbers, but my guess is that NEW GM has had to fund incentives on more vehicle sales than they have captured via building new vehicles and selling them to dealers.If the NEW GM can learn to better align production with demand on a model by model basis (more flexible union work rules achieved prior to and during BK should help here), they will begin producing much improved financial results. It doesn’t take a rocket scientist to figure out if you build product that consumers want to buy, and you price it competitively within the marketplace, that financial success will follow.The VOLT may well be timed as to provide the tipping point GM needs to get completely over the hump. I believe the company is on the way, but the heavy lifting is not over yet.Let’s get the VOLT on the road! Go GM. Go VOLT. Bring it on!!!  (Quote)

    I thought I would just add a slide or two from the presentation to illustrate your point. Like everything with the report, it is all open to interpretation. In the end it is all about the cash burn.

    dealerinventory.JPG


  10. 10
    statik

     

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    Nov 16th, 2009 (8:12 pm)

    Alright I have one more for you while I’m at it, LeoK, in reference to the sucess of the hot sellers…GM does have a few things going right for them:

    products.JPG


  11. 11
    carcus1

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    Nov 16th, 2009 (8:19 pm)

    When a lender who is 12 trillion in debt produces 10′s of billions out of thin air and gives it to a bankrupt company to preserve jobs that end up going away regardless, and then that company won’t (or maybe really can’t) tell you what their financial situation is . . . . .

    It’s just really hard to imagine all of this turning out well.


  12. 12
    RB

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    Nov 16th, 2009 (8:32 pm)

    this report leads out with the disclaimer that “the managerial financial statements do not comply with Generally Accepted Accounting Principles (GAAP)…” ….Basically this means, ‘everything we say, you have to take with a grain of salt.’

    Nice report, statik. Thank you.

    Lack of GAAP compliance is much worse than you said. It means gm likely has left some things out. They may be big things. Why would they be left out if they made things look better? Other amounts likely were not shown where they ought to be. Also, it seems to imply that no one vouches for this report except the management. Has management fudged?

    Altogether that means that we really have very little more to go by now than we had before this “report” was issued. I hope gm makes it long enough to make some Volts and trust that they will.


  13. 13
    CorvetteGuy

     

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    Nov 16th, 2009 (9:02 pm)

    “The remaining question is, will customers that have grown accustom to such deep discounts, still purchase GM cars in their absence?”

    I doubt it. Those that are actually buying a brand new Equinox are demanding “Invoice less Rebates” right now. And that’s on a 2010.!

    Take away the rebates, and they’ll head straight over to Honda.


  14. 14
    Unni

     

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    Nov 16th, 2009 (9:09 pm)

    I remember reading some old news saying “IF new GM posts loss for some time, this gives them advantage of writing of some loans which was taken by old GM”.

    I believe this loss is just for that tax purpose and use the max money to make the foundation of the company strong, They paid 2 Billion to Germany, some money for Delphi etc.


  15. 15
    Nelson

     

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    Nov 16th, 2009 (9:33 pm)

    I recommend GM announce a Volt customer appreciation campaign. They need to let the public know that due to popular demand for the Volt, initial quantities will be made available to 2009 and 2010 GM vehicle owners. This might spur current sales in anticipation of the Volt. I know what some of you are thinking, who can afford to buy a new GM now and a Volt later next year. To that I say there is only one way to find out. Announce the campaign and see what happens.

    NPNS!


  16. 16
    nuclearboy

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    Nov 16th, 2009 (9:46 pm)

    CorvetteGuy: I doubt it. Those that are actually buying a brand new Equinox are demanding “Invoice less Rebates” right now. And that’s on a 2010.!
    Take away the rebates, and they’ll head straight over to Honda.

    At least some of the dealers in my area have a little more leverage on the Equinox (or did when it first came out). They were selling as fast as they hit the dealerships in Sept and October. I guess it will slow down soon if not already.

    I do notice that they are not offering the usual $1000 rebate or cheap financing on the Equinox so that should help them some.

    For those interested, at speeds around 60-65 mph, I am able to average a little over 36 mpg highway in the 2010 equinox. I am checking this now with actual gas use in case the trip computer is biased. If the trip computer is correct, this thing gets great mileage for a 3800 Lb car with tons of leg and head room.


  17. 17
    Helmut

     

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    Nov 16th, 2009 (9:53 pm)

  18. 18
    CorvetteGuy

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    Nov 16th, 2009 (10:05 pm)

    nuclearboy:
    At least some of the dealers in my area have a little more leverage on the Equinox (or did when it first came out).

    Yeah. I’ve read that in some areas, the Equinox is selling as well as Camaros… (read: no discounts) But unemployment is going up so high in our area… I hear all the dealer brands are suffering… I sure wish the Cruze was here, or a new ‘jobs program’ in town.


  19. 19
    nuclearboy

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    Nov 16th, 2009 (10:09 pm)

    CorvetteGuy: Yeah. I’ve read that in some areas, the Equinox is selling as well as Camaros…

    I am in the MD suburbs of the district of corruption (DC). There really is not a recession going on in this area due to the large increase in federal jobs over the past few years. New cars are still sellling in this area. Hopefully the rest of the US will turn around soon (Maybe if we stop spending in DC).


  20. 20
    Herm

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    Nov 16th, 2009 (10:12 pm)

    nuclearboy: For those interested, at speeds around 60-65 mph, I am able to average a little over 36 mpg highway in the 2010 equinox. I am checking this now with actual gas use in case the trip computer is biased. If the trip computer is correct, this thing gets great mileage for a 3800 Lb car with tons of leg and head room.

    Amazing, keep us informed, this is with the 2.4l engine?.. heavy weight does not really affect hwy mpg much.. but it does city mileage since you have to accelerate and then brake.. it would be interesting to see the new BAS + applied to the Equinox.

    If yours has the 2.4l engine, what do you think of the Edmunds review?


  21. 21
    nuclearboy

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    Nov 16th, 2009 (10:38 pm)

    Herm: If yours has the 2.4l engine, what do you think of the Edmunds review?

    I have the 2LT 2.4L with the std 17 inch wheels. I factory ordered the car and then spent 8 weeks reading every review I could find while I waited for it. Many of the reviews had me a little concerned. In the end, the negatives in some reviews have proven wrong. The car far exceeded my expectations. The biggest error is on mileage. After reading many of the reviews I thought I would be lucky to get 30 mpg on the highway. I can get 32 (averaged over multiple 30 mile trips) on small state roads with red lights and some traffic (my normal route to work). Today, traveling from DC to Baltimore on 95 north with light traffic I averaged 38 mpg over the 20 mile trip with the cruise set at 62 mph.

    Edmunds is a little rough on the car. I find the power great for normal driving. Pushing the engine to 5000 rpms as they note seems ridiculous to me. They note a transmission shifting issue. This is a common thread on the first 2 months of production. I have heard about this many times. I saw no issue with a test drive. GM re-programmed the transmission logic and instituted the update in the September timeframe. Mine was produced in October and I think the transmission shifting is flawless. Edmunds complains about handling. I am surprised how well it takes a turn. They also complain about the seat height. It is higher than my minivan so I am not sure what the point is. The comfort review seems good. The reflecting chrome issue I have seen a few times but I think this is nitpicking in the extreme.

    My only nit pick so far is that the passenger seat up front should be a little lower or have the abillty to lower. I am tall and when I get in that seat I feel like I am getting into a Malibu (head room wise). The rear seats are great and actually have more head room than the passenger seat. The driver seat can go way down and I have a ton of head room on that (my) side.


  22. 22
    Sal MBA

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    Nov 16th, 2009 (10:56 pm)

    RB: this report leads out with the disclaimer that “the managerial financial statements do not comply with Generally Accepted Accounting Principles (GAAP)…” ….Basically this means, ‘everything we say, you have to take with a grain of salt.’Nice report, statik. Thank you.Lack of GAAP compliance is much worse than you said. It means gm likely has left some things out. They may be big things. Why would they be left out if they made things look better? Other amounts likely were not shown where they ought to be. Also, it seems to imply that no one vouches for this report except the management. Has management fudged? Altogether that means that we really have very little more to go by now than we had before this “report” was issued. I hope gm makes it long enough to make some Volts and trust that they will.  (Quote)

    Basically for all you non cpa’s out there, all records should be kept daily in accordance with GAAP, especially with a large cap like GM. And thus financial statements can be generated with Gaap or very close to it. Only businesses where records are not keep in daily gaap is the mom and pop businesses.
    So when I read financials are not in Gaap, I worry. Why not in Gaap? what are you leaving out? You can bet if they were in Gaap, it would paint a different picture.


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    ccombs

     

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    Nov 16th, 2009 (11:13 pm)

    Yeah, Riverside county is just about the absolute worst place in the country to be selling anything right now (besides Detroit I guess). Whenever I go visit my parents I am shocked by how many homes have been foreclosed and how many businesses are shuttered. Lots of people who previously were solidly middle class are really hurting, especially since their homes have lost a lot of value (which also means they can’t move somewhere to get a job).

    I guess you can take heart in the fact that it can only get better soon. Hopefully by 2011 people will be in better shape and looking to buy a Volt… well perhaps not that but maybe an Equinox or Spark.

    CorvetteGuy: reas, the Equinox is selling as well as Camaros… (read: no discounts) But unemployment is going up so high in our area… I hear all the dealer brands are suffering… I sure wish the Cruze was here, or a new ‘jobs program’ in town.  

    (Quote)


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    Jim I

     

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    Nov 16th, 2009 (11:46 pm)

    It is certainly a strange world where in 83 days, you lose $1,200,000,000.00 and say that it is good news!!!!

    Just to put that into perspective, since the original number is incomprehensible to a normal person, GM has lost $167.34 EVERY SECOND since they exited bankruptcy…………..

    And since they are using remedial math students to prepare these initial reports, it will be really interesting when the real numbers get released!

    Just get the Volt out, OK????


  25. 25
    DonC

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    Nov 17th, 2009 (1:00 am)

    Super report statik! Really a lot of depth. Better than the WS analyst reports.


  26. 26
    Jean-Charles Jacquemin

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    Nov 17th, 2009 (5:00 am)

    DonC: Super report statik! Really a lot of depth. Better than the WS analyst reports.  

    You said it DonC, thanks Statik.

    JC NPNS


  27. 27
    koz

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    Nov 17th, 2009 (7:06 am)

    I think we only need to look as far as how much GM repays the government to determine their financial and operational well being. A token payment (say $800M or less) and things aren’t rosey yet. Otherwise, they have confidence in their position.


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    LRGVProVolt

     

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    Nov 17th, 2009 (7:11 am)

    #22

    Sal MBA:
    Basically for all you non cpa’s out there, all records should be kept daily in accordance with GAAP, especially with a large cap like GM.And thus financial statements can be generated with Gaap or very close to it.Only businesses where records are not keep in daily gaap is the mom and pop businesses.
    So when I read financials are not in Gaap, I worry.Why not in Gaap? what are you leaving out?You can bet if they were in Gaap, it would paint a different picture.  

    I’m corrious! Not being a CPA, I’m wondering how much it would cost GM to do a GAAP? If one is not necessary, why should they go through the expense of one now. It seems to me, it would be a foolish expense of that taxpayer dollar they got.

    Happy trails to you ’til we meet again.


  29. 29
    Dave K.

     

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    Nov 17th, 2009 (7:16 am)

    Financial reports for the first quarter 2010 will be critical. As NGMCO stock goes public the first question analysts will ask is, “How much debt?”.

    The stock market offers 1000′s of companies with decent sales numbers and with relativly low debt.

    As Bob Lutz has said many times. Being in the car business is tough.

    =D~


  30. 30
    koz

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    Nov 17th, 2009 (7:22 am)

    nuclearboy: For those interested, at speeds around 60-65 mph, I am able to average a little over 36 mpg highway in the 2010 equinox. I am checking this now with actual gas use in case the trip computer is biased. If the trip computer is correct, this thing gets great mileage for a 3800 Lb car with tons of leg and head room.

    **THREADJACK**

    No friggin way the Volt gets 30mpg hwy CS mode. The 2.4L Equibox gets 36. Sheeeesh what are you people thinking? Optimizing ICE output, 1.4L, low resistance tires, optimizing aero, low power accessories, light weight wheels, high efficiency motors, etc is for chumps. Just look at how many times the resident scientists how decidedly said the Volt’s mpg will be less. They can’t be saying this sooo many times and be wrong.

    HA! Have fun!

    NPNS…LJGTVWOTR!


  31. 31
    LRGVProVolt

     

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    Nov 17th, 2009 (7:38 am)

    #27

    koz: I think we only need to look as far as how much GM repays the government to determine their financial and operational well being. A token payment (say $800M or less) and things aren’t rosey yet. Otherwise, they have confidence in their position.  

    Accorlding to info from this link, they will be paying $1 billion each quarter:

    http://www.npr.org/blogs/money/2009/11/the_morning_report_gm_will_pay_back_loan_early_tarp_likely_to_remain_through_2011.html

    “General Motors Co. is expected to fully repay its $6.7 billion in U.S. government loans by 2011, four years earlier than required.”

    “Under the plan, the automaker said it will begin paying the U.S. Treasury Department $1 billion each quarter, beginning at the end of December.”

    It’s apparent that sales have been sufficient to permit them to pay back the loans. Time will tell whether or not this trend will continue to allow them payback as they claim. This does sound like good news when considering it in conjunction with buyer confidence in the quality and value of the NEW GM vehicles. They are paying their current employees, opening production plants up and hiring back workers. If sales continue to be good and demand for their vehicles continues, it will mean increased employment. And all this is occurring mainly without any Volt sales. They will continue to take a net loss until Volt sales begin. As production of the Volt ramps up and its greater sales numbers occur, then we will see them really turn the corner. This is just the way I see it all coming down the pike.

    Happy trails to you ’til we meet again.


  32. 32
    NZDavid

     

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    Nov 17th, 2009 (7:43 am)

    Thank’s Statik.

    The above article is a prime example of why I was so mortified when you left us, and a testament to Lyle’s good sense in getting you back.

    Thank goodness my Volt looks OK.
    In the bad old days, late last year, pre GSB, I really wondered if my Volt dream was going to be exactly that; a dream.

    LJGTVWOTR
    Has Plug? Have Sale


  33. 33
    Steve

     

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    Nov 17th, 2009 (7:46 am)

    If we have no idea what their monthly burn rate is, then we cannot be sure that the volt will see showroom floor.

    I would suggest that their survivability is directly related to the popularity of their cars, here and abroad, and if sales can generate sufficient revenue, then they will be fine. That has been case for Ford.

    So I would 180 degree disagree that Volt is guaranteed. In fact, I would give it a 50/50 shot. And if Volt is not expected to be profitable, then this single factor could be nail in coffin.

    unless dollar continues and tanks and gas goes to $4, then they will look like geniuses.


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    RB

     

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    Nov 17th, 2009 (8:03 am)

    koz: I think we only need to look as far as how much GM repays the government to determine their financial and operational well being. A token payment (say $800M or less) and things aren’t rosey yet. Otherwise, they have confidence in their position.  

    My understanding is that GM is proposing to use government money to repay other government money, and is not proposing to repay the government from income derived from sales of vehicles.


  35. 35
    Schmeltz

     

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    Nov 17th, 2009 (8:21 am)

    Great report Statik. I was hoping there would be commentary on this subject.

    I understand the cash burn rate is a huge shot in the dark at this point, but can you foresee GM being able to stop the cash burn and make a profit as they are forecasting? Also, do you think they are being over-anxious to pay back the U.S. Treasury at this point?


  36. 36
    Koz

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    Nov 17th, 2009 (8:34 am)

    RB: My understanding is that GM is proposing to use government money to repay other government money, and is not proposing to repay the government from income derived from sales of vehicles.  (Quote)

    Doesn’t matter. They aren’t going to give significant cash back if they have a cash problem now or a foreseen one, regardless of the source of the cash. They would give a token abount for public relations purposes to offset the government aid fallout.


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    Tagamet

     

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    Nov 17th, 2009 (8:38 am)

    Jackson: I knew you couldn’t sit on that story, statik; thanks for dropping by.Is that a note (however small) of optimism?!Next thing you know Tagamet will drop by to sulk.   

    Funny, Jackson. You know *that* ain’t gonna happen!

    If statik gets the feeling that the Volt should survive the unsettled fiscal situation at GM, then we can be pretty darn sure that it’s likely to happen.
    Be well,
    Tagamet

    Let’s Just Get The Volts’ Wheels On The Road!!**********NPNS


  38. 38
    Tagamet

     

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    Nov 17th, 2009 (8:43 am)

    LRGVProVolt:
    I’m corrious! Not being a CPA, I’m wondering how much it would cost GM to do a GAAP? If one is not necessary, why should they go through the expense of one now. It seems to me, it would be a foolish expense of that taxpayer dollar they got.Happy trails to you ’til we meet again.  

    It seems to me that it’s not so much an issue of “can they afford it” as it is “do they want to do it” (release the actual numbers) JMO
    Be well,
    Tagamet

    Let’s Just Get The Volts’ Wheels On The Road!!**********NPNS


  39. 39
    Tagamet

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    Nov 17th, 2009 (8:50 am)

    NZDavid: Thank’s Statik.The above article is a prime example of why I was so mortified when you left us, and a testament to Lyle’s good sense in getting you back.Thank goodness my Volt looks OK.
    In the bad old days, late last year, pre GSB, I really wondered if my Volt dream was going to be exactly that; a dream.LJGTVWOTR
    Has Plug? Have Sale  

    Ditto on all of the above, especially the part where we lost a lot when we lost Statik. Come on back statik, you know you want to (g).
    /wave to NZDavid
    Be well,
    Tagamet

    Let’s Just Get The Volts’ Wheels On The Road!!**********NPNS


  40. 40
    Tagamet

     

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    Nov 17th, 2009 (8:53 am)

    nuclearboy:
    At least some of the dealers in my area have a little more leverage on the Equinox (or did when it first came out).They were selling as fast as they hit the dealerships in Sept and October.I guess it will slow down soon if not already.I do notice that they are not offering the usual $1000 rebate or cheap financing on the Equinox so that should help them some.For those interested, at speeds around 60-65 mph, I am able to average a little over 36 mpg highway in the 2010 equinox.I am checking this now with actual gas use in case the trip computer is biased.If the trip computer is correct, this thing gets great mileage for a 3800 Lb car with tons of leg and head room.  

    NB,
    That’s great news about the mileage. How is the “fit and finish”?
    Be well,
    Tagamet

    Let’s Just Get The Volts’ Wheels On The Road!!**********NPNS


  41. 41
    statik

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    Nov 17th, 2009 (8:53 am)

    RB: My understanding is that GM is proposing to use government money to repay other government money, and is not proposing to repay the government from income derived from sales of vehicles.  (Quote)

    You are right, in the government funded escrow account, 8.1 billion is set aside to pay the 6.7 owing the US, and the 1.4 owing Canada.

    GM is merely scheduling the release of this money back to the government starting at the end of this year, with a payment of 1B to the UST, and 192 million to the EDC, then additional payments quarterly.

    GM could have return little or none of it before it became due in 2015 if they so chose. This is kind of like a pre-loaded credit card, funded by a loan.
    ——-

    In my opinion, this is essentially a PR move, not really a reflection on their relative health, other than to illustrate they are not in ‘panic mode’ again, which I don’t think anyone was too fearful of before this.

    In the interest of self-preservation and future capitalization, GM needs this (financial PR) for a couple reasons:

    A) 10 BIllion DoE loan-the only thing still holding it up is apparently the ‘viability’ litmus test, this move, along with building up public sentiment and good vibes, goes along way in freeing it up (I’m actually surprised they didn’t get it before this report…but it makes more sense now in hindsight)

    B) IPO-GM needs to not only show viability, but convince the market it can be a successful entity again. Actions like this (along with actual results) will determine how close they can get to a 67 billion market cap (which is what the governments needs to recover their remaining ‘direct’ investment in GM itself)


  42. 42
    Koz

     

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    Nov 17th, 2009 (9:06 am)

    statik: You are right, in the government funded escrow account, 8.1 billion is set aside to pay the 6.7 owing the US, and the 1.4 owing Canada. GM is merely scheduling the release of this money back to the government starting at the end of this year, with a payment of 1B to the UST, and 192 million to the EDC, then additional payments quarterly.GM could have return little or none of it before it became due in 2015 if they so chose. This is kind of like a pre-loaded credit card, funded by a loan.——-In my opinion, this is essentially a PR move, not really a reflection on their relative health, other than to illustrate they are not in ‘panic mode’ again, which I don’t think anyone was too fearful of before this. In the interest of self-preservation and future capitalization, GM needs this (financial PR) for a couple reasons:A) 10 BIllion DoE loan-the only thing still holding it up is apparently the ‘viability’ litmus test, this move, along with building up public sentiment and good vibes, goes along way in freeing it up (I’m actually surprised they didn’t get it before this report…but it makes more sense now in hindsight)B) IPO-GM needs to not only show viability, but convince the market it can be a successful entity again. Actions like this (along with actual results) will determine how close they can get to a 67 billion market cap (which is what the governments needs to recover their remaining ‘direct’ investment in GM itself)  (Quote)

    All true but they wouldn’t be giving much of it back early if they need it. The DOE loan is a good point though. Who knows what they are being told behind the scenes about what needs to be done to make that happen. For PR only, they don’t need to commit and pay $1B/qtr early.


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    mitch

     

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    Nov 17th, 2009 (9:57 am)

    Interestingly, the “sheeples” of America will not understand, not that it is a bad thing.

    I would say too many Americans were “I will never buy a GM, they took taxpayers money!!” will now be. “ok I was wrong, they are already paying us back! and not small amounts but BILLIONS!!!” lets check them out”

    Great PR move.


  44. 44
    storm

     

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    Nov 17th, 2009 (9:57 am)

    I wonder if they are still rewarding their executives with the lavish compensation that Rick Waggoner epitomized. I once calculated that GM paid him $20,000 to take a crap.

    Does any of the management ever realize how many vehicles have to be sold to pay $1M of salary? Especially if you are losing money on each unit. :-( The attitude seems to be, “What’s a few million for me to a company losing billions.”


  45. 45
    statik

     

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    Nov 17th, 2009 (10:04 am)

    Thanks for the kind words fellows, I enjoy writing the odd story for the site, and it is encouraging that most people aren’t finding me too intrusive…I suspect Lyle only lets me do it so he can get come up for air and re-acquaint himself with his family, (=

    Schmeltz: Great report Statik. I was hoping there would be commentary on this subject.I understand the cash burn rate is a huge shot in the dark at this point, but can you foresee GM being able to stop the cash burn and make a profit as they are forecasting? Also, do you think they are being over-anxious to pay back the U.S. Treasury at this point?  (Quote)

    Sorry, sometimes my sarcasm gets in the way of what I writing about. Personally, I find the announcement of ‘early repayments’ to the government…with the government’s own money to be a little duplicitous, but it is also the exact right thing to do for them looking at it from their perspective. Kind of like drawing down money to over producing cars ahead of bankruptcy, knowing you are not going to repay that money…good/smart for them, not so good from other prospectives.

    As for slowing/stopping the cash burn and/or making a profit, I am trying to get out of the ‘forecasting’ business, but I do know that at these depressed volume levels GM has to figure out a way to get away from leading the league in offering massive incentives.

    Clearly, it is not going to start this month/year, GM has everything on sale starting this week:
    Chevy – “Red Tag Sale”
    Buick – “Holiday Event”
    GMC – “Holiday Event”
    Cadillac – “Seasons Best” Event

    I’ll attach a incentive chart to illustrate how much GM has been giving away of late: (as FYI, GM gave away $4,277 per car in October on 177,603 sales, or about 760 million for the month)

    incentives.JPG

    It doesn’t do much good to make your company more efficient/streamlined if you are just going to turn around and give that margin away. For comparison purposes, Toyota offered $1,338 per car, Ford $2,908, Honda $508…and Subaru offered the least at $262


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    Tagamet

     

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    Nov 17th, 2009 (10:15 am)

    statik: It doesn’t do much good to make your company more efficient/streamlined if you are just going to turn around and give that margin away. For comparison purposes, Toyota offered $1,338 per car, Ford $2,908, Honda $508…and Subaru offered the least at $262

    Isn’t this a “foot in the door” attempt to overcome some bad reputation issues? Kinda like priming the pump – it’s only done when necessary.
    Be well,
    Tagamet

    Let’s Just Get The Volts’ Wheels On The Road!!**********NPNS


  47. 47
    N Riley

     

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    Nov 17th, 2009 (10:16 am)

    Statik,

    Great report. I view you as a person with his eyes open and his senses attuned to the events shaping the financial world, especially where it touches the Volt and other auto products of interest. Keep up the good work. And I agree with you about Lyle. He does need a breather every now and then and I know he can count on you to deliver a good report. Hope to hear more from you soon.


  48. 48
    Nick D

     

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    Nov 17th, 2009 (10:25 am)

    The first thing that GM must do to become successful is to change the public opinion of their brands. Although quality in GM vehicles has increased signifigantly since the 80′s, many Americans sill belive that they are subpar quality.

    I have a coworker that talks about how she will never drive and American made auto because they are “just crap”. She has never personally owned one but her Dad did in the 80′s and his opinion influenced her opinion. I am sure there are millions out there with the same mindset who dont care about consumer reviews. We just need to get them in a new GM vehicle to change their mind. I know driving a HHR and GMC Canyon rental cars when my Japaneese made vehicle was getting a new engine at 80K miles sure changed my mind…


  49. 49
    nuclearboy

     

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    Nov 17th, 2009 (10:25 am)

    Tagamet: That’s great news about the mileage. How is the “fit and finish”?
    Be well,
    Tagamet

    Tagamet,

    I have looked the car over carefully and I find no issues with the fit and finish. As far as I can tell, the car is perfectly built. I am the kind who crawls under the car and looks at it from all angles. Kudos to the team at CAMI…. The attention to detail in the design is still surprising me too. Kudos to the GM design center.

    As I read my post on the gas mileage, I want to temper that with some more information. I am getting great mileage but it can drop if you drive agressively. I have been driving like an old man to see what the mileage can be. No Jackrabbit starts.. Right now I am sitting at work with about 50 miles on the car since the last fillup and mileage reset and the trip computer says 35.1 mpg.

    1. The car does seem to get 35-36 mpg on the highway at 60-65 mph with no problems and for long distances. This is on relatvely flat road (traveled in both directions to remove any bias) with some modest hills where a downshift to 5th gear may occur for short periods. This does not include any significant stopping and starting and my accellerations are modest.

    2. The mileage can quickly fall into the mid 20s on short trips around town and with many stops and starts. I don’t want to give the wrong impression. When used for short trips, a 3 mile trip here, wait, a 3 mile trip back, repeat, repeat, the mileage is in the mid 20′s. It could use a battery and some regenerative braking.

    I am just happy to know that I can get pretty good mileage and the car is super comfortable. My car pool buddies are spoiled rotten now. The back seat is huge.


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    maharguitar

     

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    Nov 17th, 2009 (10:35 am)

    That disclaimer would be on any financial report where the auditors had not signed off on the numbers. I’ve worked on a few presentations where we presented numbers that were identical to the ones in the final SEC report but we added a disclaimer that was almost identical to the one quoted above because we hadn’t actually filed the official quarterly results.

    I you publish numbers and they are different from the actual filing you better say that they aren’t the official numbers and that GAAP were not applied. Remember, the official numbers aren’t official until the moment of the actual filing.


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    Tall Pete

     

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    Nov 17th, 2009 (10:38 am)

    I want to join my voice and congratulate you on a great report. Always very insightful to read you, Statik.

    Take care.


  52. 52
    Schmeltz

     

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    Nov 17th, 2009 (10:47 am)

    #45 Statik:
    Thanks for answering my questions. It still looks like one of the biggest hurdles standing in the way of profitability is to somehow wean people off of incentives. I don’t have a clue as to how that is going to happen, especially in a 10-11 million SAAR market. Perceptions of quality are slowly changing, the 4 core brands are gaining traction and are covering the loss of the 4 lost brands, new models appear to be selling, more new models are coming, but I guess bottom line, it just takes time.


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    Koz

     

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    Nov 17th, 2009 (10:57 am)

    statik: It doesn’t do much good to make your company more efficient/streamlined if you are just going to turn around and give that margin away. For comparison purposes, Toyota offered $1,338 per car, Ford $2,908, Honda $508…and Subaru offered the least at $262

    This incentive amount might be relative though. Of course cars built pre-bankruptcy had the old cost structure but cars built since bk should have a lower cost structure or all was for naught. If GM is maintaining the retail pricing structure that was previously established, then they should have more profit to work with now. That’s not to say they don’t want or shouldn’t try to keep as much as they can but $1k in incentives today might not mean the same as it did prior to bk.


  54. 54
    statik

     

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    Nov 17th, 2009 (11:12 am)

    Koz: This incentive amount might be relative though. Of course cars built pre-bankruptcy had the old cost structure but cars built since bk should have a lower cost structure or all was for naught. If GM is maintaining the retail pricing structure that was previously established, then they should have more profit to work with now. That’s not to say they don’t want or shouldn’t try to keep as much as they can but $1k in incentives today might not mean the same as it did prior to bk.  (Quote)

    Your very right. And the ambiguous nature of this report, along with it being the first for ‘new GM’ with all the one-time/special items makes it impossible to say anything with certainty.

    Other than the implied product deficiency you give by offering much greater incentives to purchase than that of your competition, we really can’t say anything for sure yet.

    GM/Fritz Henderson actually did give reference to decreasing/closing this incentive gap in the near term during his ‘update’ conference call, but it looks like that has to be put off until the 09s are cleared out…and they still have about 16,000 ‘dead brand’ vehicles on the lots that need to go. All of those will leave with heavy rebates/low transaction prices.


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    LauraM

     

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    Nov 17th, 2009 (11:18 am)

    Thanks for the report. I was wondering what i was missing from the statement. My default assumption is that if it’s not GAAP, I don’t trust it.

    But the fact that they’re not clinging to every loan they can possibly hope to get is a good thing, IMHO. Especially since they have to be worried about their future access to the private bond markets. They also seem to be wililng to spend on their future (i.e. Opel.)

    They are going to have to file a GAAP report in a few months anyway, so hopefully, it won’t be too different. After all, if it is materially different, it will be much worse PR wise, than if they’d just been honest to begin with…


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    NZDavid

     

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    Nov 17th, 2009 (8:10 pm)

    .

    1. Repay $1B : Gee look we are profitable now can we have DOE loan?

    2. Receive $10 B DOE loan.

    3. Publish actual GAAP results.

    4. Remind team that if Volt is not profitable to keep production low until version two.

    5. Work out bonuses for management team.

    6. Remind Corvette guy, than in return for his new 10M salary, he is ‘expected’ to use the bulk of it to maintain the lease on his ‘new’ corporate jet, and we need it for the weekend.

    /OK getting too cynical now, time to stop.

    Has Plug? Have Sale


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    Streetlight

     

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    Nov 18th, 2009 (12:52 pm)

    Filing non-GAAP financial statements does not mean the accounting was made up ten minutes ago. Surely its auditors are 7/24 aware GM is subject to compliance with its Chapter 11 Plan-of-Reorganization & its mandatory obligations to its principal shareholder – United States. If you ever worked with nervous big-four (formally big-eight) CPA’s -its the associates who actually do most of the work- and I’ll bet their audit-managers crack a mean whip. So every dime is accounted for… just how certain line items are treated. There’ll be no surprises…