GM filing warns on reporting

GM filing warns on reporting http://tinyurl.com/38v4xox
Financial controls being fixed
More than a year after it settled a government lawsuit and restated six
years of financial results, General Motors on Wednesday warned potential investors that internal financial controls are still not effective but it's working to fix the problem.
The Securities and Exchange Commission sued GM in 2004, alleging the automaker misstated assets of pension funds. The company settled the case in January 2009 without a fine or admitting wrongdoing. The SEC said GM agreed to change accounting practices so the problem would not recur.
But in regulatory filings about its upcoming initial public offering, GM warned potential investors that "our internal controls of financial reporting are currently not effective."
Experts are divided on whether the warning -- one of about 30 risk factors identified by GM in a document describing a planned sale of shares -- is just an obscure accounting matter or a red flag that taints GM's financial reporting.
GM reported a $2.2-billion profit in the first half of this year, compared with a $4.4 billion loss during the same period a year ago.
"As an investor, I would want to know if you had these problems what are you doing about them now?" said Peter Henning, a Wayne State University law professor knowledgeable about securities law.
Actually, GM has worked on this issue for some time. In a separate recent SEC filing, the company answered this way:
"During the six months ended June 30, 2010, management led various initiatives, including training, to help ensure the controls related to the period-end financial close process would operate as they had been designed and deployed during the 2009 material weakness remediation efforts," the company stated.
Progress will be updated with each quarter's financial results, GM spokeswoman Renee Rashid-Merem said.
One expert advised against reading too much into it.
"If it were important, it would say precisely what the problems were. This type of language is in almost every prospectus," said Linda Killian, principal at Renaissance Capital in Greenwich, Conn.
Still, Killian said four risk factors stood out as issues:
The U.S. Treasury will continue to own a substantial interest in GM after this offering.
GM's planned investment in new technology is significant and may not be funded at anticipated levels.
Volatile oil prices could weaken demand for more-profitable vehicles such as large pickups and SUVs.
Even though the UAW will manage the Voluntary Employee Beneficiary Association, GM is obligated to contribute large amounts of cash in the future, including three installments of $1.4 billion on July 15, 2013, 2015 and 2017.
Another source of tension between management and the U.S. Treasury might be the latter's oversight of executive compensation. That control will continue until Treasury sells its last share of GM, said a source familiar with the policy. "These actions may materially adversely affect our ability to hire and retain salaried employees," GM stated in the registration. "At the same time we have substantially decreased the number of salaried employees so the workload is shared among fewer employees."
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On 8/20/2010 3:34 PM, Jim_Higgins wrote:

Didn't we here this before?

GM should have been closed then. Letting them wipe out $177 of debt and more in capitalization, well, criminal actually. But like Obama, Bush like to appease the masters.

Maybe some truth shining through here. GM is a crap shoot. Pump'n'dump...LMAO.
This is so funny. Even if the IPO goes forward, I wonder if it will sell and if so at what price?
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Somebody told me yesterday that they were aiming at ca$27 per share on the IPO. Bwaaaahaahaahahahaha!!!
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On 8/21/2010 12:29 PM, hls wrote:

Depends, if the issue is one share!!! Share prices are not the issue, market cap is.
I would be interested in knowing the following before I even considered this turkey.
1) What is the anticipated market capitalization of the offering? 2) A full set of annual financial reports right up close to present, not 2 years old but now. Guaranteed by the government. 3) How much preferred shares and other debt instruments being issued and planned. Are they government guaranteed? Liquidity of them? Interest rates and frequency? 4)Total disclosure of all debts, liabilities etc. Open and concise. Pension liabilties included with fresh assessments. 5) List of board members including their powers and corporate structure 6) SEC filings on all senior executives including departure clauses and pay
And at least week to digest it. No pegging the price/cap the night before.
But my guess is that it will be a crap shoot. Depends how desperate the government wants to dump GM. But if over $9 billion of preferred and common stock, I wouldn't waste my time. Given their poor record, possibility of AmeriCredit doing a GMAC, sub-zero credit rating, no more than 6 times current quarter net earnings. Not operational earning either, I mean net of all costs and liabilities being met.
Preferred need a government guarantee big time as GMs credit risk/score is the highest in the world. If not guaranted on liquidity/cash out they are not worth much or would have to have a very high rate of return. Say 28 to 33%. I mean this serious, bad credit, poor history, I want high risk credit rates or forget them. I would also want some assurances that unlike the last perferred share holders, the government will let them take priority over all other debt and liabilities, not negotiable without offering cash in for face value with interest. The last preferred share holders took a real beating.
My guess is if they don't price this aggressively in favor of investors, they run the risk that it will not fill. This has happened before where they do not fill.
But it is unlikely. Investing in GM in this stage is likely a crap shoot.
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Your last line summarizes it, I think. You get no guarantees when you buy an IPO. Very often what you pay for one will be the highest the stock will go for a while,.....maybe ever. This is not universally true, but often the eager rush in and pump up the IPO while the cautious investor may get it cheaper later.....if you want it.
GM was previously paying some decent dividends and a lot of people held on, buoyed up by what they believed to be a harbinger of profits.
Not on my list of things to lose sleep over.
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You are correct there are no guarantees when one buys stocks or bonds but get real, I bought my first GM stock in the mid-fifties. It spilt three times since, which means I had three times as many shares and the share price was always higher than my original purchase price of 40 1/8.
In the end I lost all of my shares in the GM bankruptcy but the dividends I earned, over the fifty three years or so that I held them, was far greater than had I bought 30 year Treasuries with my initial investment and reinvested in Treasuries, even though I would still have the US Bonds today.
I remember back in the day when the soothsayers would say the market will never go over 1,000. During the height of the Bush years it was 16,000. With all of the deficit spending being done by BO(ZO) and the Dims it Congress, it may take six years or more to get back to 16,000, but it will go up.
The truth is no mater when one invests in the stock market, the markets has always been higher ten years later, even if one invested before the Depression. I for one will buy the new GM stock with the IPO
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http://finance.yahoo.com/echarts?s=^DJI+Interactive#chart2:symbol=^dji ;range 000103,20100820;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on
Funny, looks like the last 10 years was pretty close to a 0% return.
Mind you if you are a savvy active investor you made money. But on average for all investors added up, the market was zero dollar growth.
Given inflation is higher than 0% in the last 10 years, on average people lost value big time. It is why many bough gold.
That isn't to say I would recommend not being in the markets, for the savvy they make money...but buy and hold...like your GM stock...looser.
On 8/22/2010 9:01 AM, Mike wrote:

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As we have come to expect you have not idea what you are talking about, again LOL
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On 8/22/2010 6:22 AM, hls wrote:

Hardly scientific, but I haven't had much luck with IPOs in the past and usually site back and wait. Two thirds go south inside of 3 months of offering. Stands to reason though, the owner does not think they are worth more in holding thus the sell off. But in this case it is government.
Dividends are secondary to capital preservation to me. If inflation upticks 5%, I want the stop to do at least 7% to cover taxes on the gains. Dividends are good, but not the be all end all. We certainly agree here.
Will not loose sleep either...but will watch...big turkey sale coming up.
But it is worth watching IPOs. Often what happens is it gets IPO of say $10, in 3 months tanks to $7 then you pick it up. But GM, union, history, bad credit...nt the kind of issues I hold.
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If science and analysis worked very well, we would have all known about the tsunami of 2008. If the research groups of the brokerages had any clues, not many of them warned their clients.
Investing in the stock market is one part numbers and about one part market savy and 3 parts intuition, I think.
A lot of people my age slip over to dividend paying stocks. They put groceries on the table. The buy/sell whirlpool makes money for the brokerages, and costs most of us 4-6% per commission cycle. The "financial advisors", sometimes very liberally referring to themselves as stock brokers, make money if they get you on this cycle, and you may (or may not). They are not heartbroken if you lose, but feel a little better if you win. What is important to them is that they win.
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On 8/22/2010 9:32 AM, hls wrote:

Actually it worked quite well, just that people chose not to look at the indicators. When interest rates inverted (became lower) than inflation, it has always been followed by a recession or depression. No exceptions. I was told that rule 20 years ago by a wise investor.
In 2006 to 2007 we saw it lower, by April 2008 I was selling off up to 60% cash, the highest I have been in 20 years before that. Bigger the inversion, the more you sell.
But "Liberal" and Keynesian types don't believe in "conservative" tried and true old time economics. You can even estimate pent up inflation from the gold, about 300%. IF / when recovery continues we could see about 300% inflation in 10-20 years (or sooner) based on the created currency.

Agreed.
I don't trust financial advisers one bit. They are like the devil in sheep's clothing, nothing new there. Churn and commissions is what they do. Any that are good, 99% of us could not afford as they work for Gates or Buffets of the world.
But our advantage as a small investor and a big one, we can move into and out of a stock pretty quick. Which is easier to unload or buy? 10,000 shares of Ford or 20,000,000 ?
When the tide turns, the small savvy investor has the edge.
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