August 8, 2009

‘Private Company’ GM Won’t Release 2Q09 Financials Until November, If At All

Filed under: Business Moves,Taxes & Government — Tom @ 10:38 am

GovernmentMotorsOn July 23, a spokesperson for state-controlled General Motors, following up on an inquiry I had made earlier in the day, informed me of the following in an e-mail:

Relative to your question regarding GM’s intent to report financials …..

GM plans to remain transparent regarding status on our business, including sales results and financials. As in the past, the sales and financial results have been reported in separate communications and we will continue with that practice. A date for reporting GM’s Q2 financial results has not yet been determined.

Yesterday, GM filed an 8-K report with the Securities and Exchange Commission. It’s an 8.9 mb behemoth (available here) that will crash your Adobe Acrobat if you’re not careful. Among other things, it has 11 pages discussing risk factors, including an astonishing admission that the company’s “lack of effective internal controls could materially affect our financial condition and ability to carry out our business plans”; over 30 pages of minutiae relating to executive compensation; detailed information about unit sales; and over 3,000 pages of exhibits, including various agreements between the company and the United States Treasury.

But there are no second-quarter financials. Not even revenues.

Perhaps it’s my background, but I tend to have more patience than most for financial reporting issues and difficulties. But not in this case — especially given the promises of transparency.

A “New GM” didn’t emerge from bankruptcy until July 10, after the quarter ended. The original GM, now commonly referred to as “Old GM,” though in bankruptcy, was and still is a public company. After the shuffling of assets and liabilities in bankruptcy, “New GM” in essence got all the ongoing goodies, while “Old GM” got stuck with the dregs.

The formal name of “Old GM” is now Motors Liquidation Company. Its stock trades under the symbol MTLQQ. According to the 8-K “New GM” just filed, Motors Liquidation owns 10% of “New GM.”

Since it is still alive, “Old GM” aka Motors Liquidation would ordinarily be expected to file second-quarter financial statements with the Securities and Exchange Commission within 40-45 days of the end of the quarter, i.e., between August 9 and 14. Apparently, that’s not going to happen for quite a while. Dow Jones reported yesterday that:

In a regulatory filing, the auto maker said it will file quarterly reports as if it were still public. But rather than announcing April-through-June performance midyear as is customary, those figures will come out sometime after Sept. 30.

At that time, GM will make two separate reports: one for the so-called “old GM,” now being liquidated in bankruptcy court, and another for the GM created July 10 when a bankruptcy judge approved the sale of GM’s viable assets to the new company.

I would not be surprised if we never see a “clean” second quarter report for “old GM,” which may decide to report for April 1 through July 10. In any event, we now know that by the time we do see any full-fledged financials for either entity, it will be early- to mid-November. That’s pretty convenient for a company that is hemorrhaging market share and otherwise putting off a boatload of mostly bad news.

Contrary to what the GM spokesperson asserted, what is transpiring is not exactly “transparent.” Even if cost and profitability details were elusive in bankruptcy (and I tend to doubt it; many publicly-held companies in bankruptcy have issued complete financials), it should have been a piece of cake for “Old GM” to at least disclose revenues. I have little doubt that the Obama SEC would have issued a partial financial-statement waiver if needed and desired.

I suspect that the real reason we’re not seeing revenues is that, as was the case in the first quarter, GM’s revenues again trailed Ford’s.

Oh, and there’s this, also from the 8-K (bold is mine):

We are a private company and are not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. We are a voluntary filer with the Securities and Exchange Commission (SEC).

Okay, technically, GM is a “private company” (“A company whose shares are not traded on the open market”). But it surely isn’t “private” (“Personal or restricted”). US taxpayers own 61% of GM. It shouldn’t be too much to ask a majority taxpayer-owned entity to stop hiding behind legalese that was never intended to cover state-controlled enterprises.


UPDATE, August 10: A close reading of the last two paragraphs of this AP report would indicate that we’re never going to see the second quarter broken out separately:

The company also disclosed Friday that it would not report second-quarter earnings this year, but it will disclose its performance for the three- and nine-month periods before Sept. 30. Those reports will come after the third quarter closes, and the company said they will not comply with general U.S. accounting principles. GM, however, will file reports that meet the accounting standards in 2010.

Spokeswoman Renee Rashid-Merem said GM won’t file the second-quarter earnings because of the extensive work still needed to set up the books for the new company. The new company also needs to finish accounting changes made necessary by selling its good assets to the new company.

I have to assume “would not report second-quarter earnings this year” in the first paragraph and “won’t file” in the second really mean “won’t ever file, period.” Of course, really enterprising financial statement readers might be able to piece the second quarter together by piecing “Old GM’s” first quarter and “new GM’s” third quarter from what the AP says will be a statement for the first nine months. But:

a) One of the reasons financials get released is so that stakeholders, in this case including the taxpaying public, don’t have to do that.
b) Depending on how they are presented, the reverse engineering may not be doable.
c) Based on the maneuver just pulled, I’ll believe it when I see it.