QUOTE
By JOHN D. STOLL
November 6, 2007 6:05 p.m.
General Motors Corp. said Tuesday it will book a $39 billion noncash charge in the third quarter as it establishes a valuation allowance and reduces certain net deferred tax assets to $0 in order to be in compliance with federal accounting rules.
The move is triggered as the company has lost money on an adjusted basis during the three-year period ending in the third quarter of 2007. The noncash charge will likely devastate GM's headline net earnings results for the third quarter, which the auto maker is scheduled to release Wednesday morning.
The charge will be partially offset by a gain related to the sale of Allison Transmission, which was closed in the third quarter. GM could realize a more than $5 billion gain thanks to the sale of that unit.
The adjustments concern GM's operations in the U.S., Canada and Germany, all of which are challenged markets due to a slowdown in demand and a brutal pricing environment. The auto maker is conceding that the near-term environment will remain tough and its significant earnings drivers will remain under pressure.
GM additionally has racked up significant losses related to its equity stake in GMAC Financial Services, which has fallen into red ink due as its ResCap mortgage struggles to overcome weakness related to exposure to the subprime lending market. ResCap lost $1.8 billion in the third quarter alone, leading to a $1.1 billion loss for GMAC, which is the largest quarterly loss since at least the 1960s for the lending unit.
The auto maker has made similar adjustments to deferred tax assets in other regions in the past, including Brazil and Korea.
"The establishment of a valuation does not have any impact on cash, nor does such an allowance preclude us from using our loss carryforwards or other deferred tax assets in the future," GM Chief Financial Officer Fritz Henderson said in a press release. (Read the statement.)
"It's also important to note that the establishment of a valuation allowance does not reflect a change in the company's view of its long-term automotive financial outlook." The company expects new products and a new labor deal to lift longer-term earnings prospects, he said.
November 6, 2007 6:05 p.m.
General Motors Corp. said Tuesday it will book a $39 billion noncash charge in the third quarter as it establishes a valuation allowance and reduces certain net deferred tax assets to $0 in order to be in compliance with federal accounting rules.
The move is triggered as the company has lost money on an adjusted basis during the three-year period ending in the third quarter of 2007. The noncash charge will likely devastate GM's headline net earnings results for the third quarter, which the auto maker is scheduled to release Wednesday morning.
The charge will be partially offset by a gain related to the sale of Allison Transmission, which was closed in the third quarter. GM could realize a more than $5 billion gain thanks to the sale of that unit.
The adjustments concern GM's operations in the U.S., Canada and Germany, all of which are challenged markets due to a slowdown in demand and a brutal pricing environment. The auto maker is conceding that the near-term environment will remain tough and its significant earnings drivers will remain under pressure.
GM additionally has racked up significant losses related to its equity stake in GMAC Financial Services, which has fallen into red ink due as its ResCap mortgage struggles to overcome weakness related to exposure to the subprime lending market. ResCap lost $1.8 billion in the third quarter alone, leading to a $1.1 billion loss for GMAC, which is the largest quarterly loss since at least the 1960s for the lending unit.
The auto maker has made similar adjustments to deferred tax assets in other regions in the past, including Brazil and Korea.
"The establishment of a valuation does not have any impact on cash, nor does such an allowance preclude us from using our loss carryforwards or other deferred tax assets in the future," GM Chief Financial Officer Fritz Henderson said in a press release. (Read the statement.)
"It's also important to note that the establishment of a valuation allowance does not reflect a change in the company's view of its long-term automotive financial outlook." The company expects new products and a new labor deal to lift longer-term earnings prospects, he said.
I think everyone's still trying to work out what this is going to do to their balance sheet.
