GM's $30B Goodwill Write-up Explained

[SuperFly03]

Originally Posted by Dragoneye

Superfly, I do have one question -- maybe it's buried in there somewhere and I missed it.

If the "goodwill" mark is a paper-only balance to the equation resulting from the switchover to 'new GM', then how will it ever be written down and removed? Does any actual money need to be spent or diverted?

As another member mentioned it will be tested for impairment at least annually and will be reduced by a non cash charge to the income statement. The charge will involve zero cash. The asset will require zero cash to be diverted. It is a paper only deal all the way around.

[SuperFly03]

Originally Posted by Berean

It seems like you're saying that the equity that was wiped out in the "old GM", i.e. stock holders and bond holders, is now being counted as a goodwill asset in the "new GM" because both sides of the equation must balance.

Am I reading it wrong?

That is part of what gave rise to the goodwill balance yes, but you shouldnt think of it that way because the equity is truly gone.

Originally Posted by Xanthos

I may be wrong on this, but the way I interpreted it, over time the sale value of GMs assets will increase to a more fair value, which would decrease the gap between the reported value of GMs assets and the value of their equity, therefore eliminating the need for the goodwill balance.
- X

Not in this case. Now that the balance has been established it will not change unless there is an impairment or a purchase of a company.

[SuperFly03]

Originally Posted by 2010-1SS-IBM

Goodwill is the difference between what all the assets and liabilities net to, and what the company is purchased for.

It sounds strange, but it's basically the premium the market offers for the intangible (those things that can't be valued) assets like intellectual property (knowledge) that a company has.

The premium relates mainly to the added EPS and future cash flows for the company as well as the IP.

[HeHasReturned]

Alright, now that I've taken the time to re-read the entire post, I have a few questions. Please pardon my "troll" ignorance.

Isn't Goodwill an intangible asset? If so, then why is it something separate and not included in the 15.9B "intangible assets" grouping?

Next, why doesn't it matter what the value of the assets were before the "change?" How do we know that the assets weren't already out of balance with liabilities and equity, and now the equation is supposed to be balanced without any goodwill? It seems to me that you're saying the right side of the equation went up by 30B, so the left side must also...But if they were inequal to start, which is a great possibility considering GM accounted for 0 Goodwill, then that wouldn't be the case, would it?

[Georgie]

Goodwill is like a super-intangible asset--it relates to things that can't be specifically capitalized like a patent or trademark (both intangible assets). its like the aggregate of things such as earnings potential, skill of management, reputation, that you pay a premium for over FMV. i can't specifically explain this one case w/ GM having $32B in Goodwill after a bankruptcy though. it confuses me as well. i'm only familiar with how to treat Goodwill after a purchase and in Consolidations.

we can say that the A=L+E was in balance in previous years with reasonable assurance because of annual audits by the audit firm. otherwise, they would not have received an unqualified opinion on their financials. yes, there was Arthur Anderson and Enron, but i don't think there's possible collusion w/ the audit firm in GM's case.

[HeHasReturned]

Ok, I understand that it must have been in balance in previous years.

I'm also still confused by the goodwill though...It sounds like to me that since the numbers don't add up (and I'm not saying only GM does this), people just throw in more to balance it. In other words, since 2 +2 is not adding up to 5, we'll just add another 1 and label it as an "other" asset, one that we have no idea about or even exists, it's just there to make the numbers add up.

[SuperFly03]

Originally Posted by Georgie

Goodwill is like a super-intangible asset--it relates to things that can't be specifically capitalized like a patent or trademark (both intangible assets). its like the aggregate of things such as earnings potential, skill of management, reputation, that you pay a premium for over FMV. i can't specifically explain this one case w/ GM having $32B in Goodwill after a bankruptcy though. it confuses me as well. i'm only familiar with how to treat Goodwill after a purchase and in Consolidations.

we can say that the A=L+E was in balance in previous years with reasonable assurance because of annual audits by the audit firm. otherwise, they would not have received an unqualified opinion on their financials. yes, there was Arthur Anderson and Enron, but i don't think there's possible collusion w/ the audit firm in GM's case.

I'll just side step the Enron reference...

Anyways, in this case, Goodwill does not relate to the intangibles you mentioned (patents, trademarks, etc). Those are actually captured in the $15.9B that HHR is asking about above. The goodwill in this case is the most fungible thing you can imagine. It really has no basis other than to make the equation balance.

In normal instances Goodwill is an intangible asset that attempts to capture the excess earnings potential in the company acquired. For instance, if I owned Microsoft and I made $100 profit each year on $500 in assets and you offer me $600 for my business would I sell it? No, all I would have to do is run it for 1 more year then sell every asset and I'd have the same amount of money. Well, what if you offer me $1200. In that instance I would have to run the company for 7 years (assuming 0 growth) then sell everything. Well you believe you can grow the business beyond $100/yr profit so you are willing to overpay because I've already set up the business and got it running. So goodwill captures that future earnings and the value of already having the business setup and running.

Intangibles such as patents, non-competes, trademarks, etc. are given a separately identifiable value.

Originally Posted by HeHasReturned

Alright, now that I've taken the time to re-read the entire post, I have a few questions. Please pardon my "troll" ignorance.

Isn't Goodwill an intangible asset? If so, then why is it something separate and not included in the 15.9B "intangible assets" grouping?

Next, why doesn't it matter what the value of the assets were before the "change?" How do we know that the assets weren't already out of balance with liabilities and equity, and now the equation is supposed to be balanced without any goodwill? It seems to me that you're saying the right side of the equation went up by 30B, so the left side must also...But if they were inequal to start, which is a great possibility considering GM accounted for 0 Goodwill, then that wouldn't be the case, would it?

As I mentioned above in this post, those are patents, trademarks, non-compete agreements, etc. Things that have value but that you can't hold in your hand and say this is what I'm referring to.

No company that is audited will ever issue a balance sheet that doesn't balance. That's what we public accountants make sure of.

Originally Posted by HeHasReturned

Ok, I understand that it must have been in balance in previous years.

I'm also still confused by the goodwill though...It sounds like to me that since the numbers don't add up (and I'm not saying only GM does this), people just throw in more to balance it. In other words, since 2 +2 is not adding up to 5, we'll just add another 1 and label it as an "other" asset, one that we have no idea about or even exists, it's just there to make the numbers add up.

The reason it doesn't seem to make sense is you have one number fixed (equity) and 2 guys being revalued but no matter what A has to equal B + C. Therefore the difference has to go somewhere and in accounting Goodwill is kind of the catch all in instances like this.

You can calculate goodwill when Company A buys Company B but with GM things that they already own are changing in value which means, honestly, it's a plug to make sure the rules of math are on the up and up.

[2010-1SS-IBM]

Originally Posted by Georgie

Goodwill is like a super-intangible asset--it relates to things that can't be specifically capitalized like a patent or trademark (both intangible assets). its like the aggregate of things such as earnings potential, skill of management, reputation, that you pay a premium for over FMV. i can't specifically explain this one case w/ GM having $32B in Goodwill after a bankruptcy though. it confuses me as well. i'm only familiar with how to treat Goodwill after a purchase and in Consolidations.

The government injected more capital than the net of assets and liabilities, so there is goodwill.

[a_Username]

Originally Posted by 2010-1SS-IBM

The government injected more capital than the net of assets and liabilities, so there is goodwill.

The government can't inject capital, they only can expand credit and use monetary policy that inevitably leads to boom-bust cycles. There is not one historical example of a government accumulating capital.

[Russo]

the we should not have bailed out GM.. they didn't bail out the steel, rail road, or telephone companies... now, phone companies have created the cell phone, steel companies became diverse, and the rail road industry holds a higher level of authority than states...

as a business owner, you have to have a product people want or need.. if you have neither, you cannot stay in business... the people who work for GM or were in retirement through GM shouldn't pay for the mishandling of the company, but when you have leadership who refuses to take blame and account for their mistakes, you have to understand that the entire country cannot suffer for the few thousand...

we have a president who has set himeself against the oilfield and those who work or are influenced by it... now you have companies fighting for survival and the many thousands who work in the Gulf states (such is affecting my business)... when you have large companies like Shell or Exxon threatening to file Chapter 7, do you create another bail out for them? we already prop'd up 2 companies, why not more? when does it stop? thank God BP made money, so they can afford to pay for their own misjudgements without running to the government..

Enron
Adelphia
Tyco
Worldcom


- old video, but well put

Originally Posted by a_Username

The government can't inject capital, they only can expand credit and use monetary policy that inevitably leads to boom-bust cycles. There is not one historical example of a government accumulating capital.

i like this, lol... i created my company using Legalzoom.. one day about 3 weeks ago, an Indian lady called me to see how i was doing... she offered me capital as some kind of special bargin..

i said "lady, you talkin about a loan?"
she said, "yea... "
i replied, "i don't need a loan, everything i own i paid for 100%, i never took a loan out and im never going to.."
she exclaimed, "wow good for you!"
i said, "yea, and if anyone ever needs a loan after being in business for 4 months, they shouldn't be in business in the first place."
......
"thank you, have a nice day"

[a_Username]

Originally Posted by Russo

the we should not have bailed out GM.. they didn't bail out the steel, rail road, or telephone companies... now, phone companies have created the cell phone, steel companies became diverse, and the rail road industry holds a higher level of authority than states...

as a business owner, you have to have a product people want or need.. if you have neither, you cannot stay in business... the people who work for GM or were in retirement through GM shouldn't pay for the mishandling of the company, but when you have leadership who refuses to take blame and account for their mistakes, you have to understand that the entire country cannot suffer for the few thousand...

we have a president who has set himeself against the oilfield and those who work or are influenced by it... now you have companies fighting for survival and the many thousands who work in the Gulf states (such is affecting my business)... when you have large companies like Shell or Exxon threatening to file Chapter 7, do you create another bail out for them? we already prop'd up 2 companies, why not more? when does it stop? thank God BP made money, so they can afford to pay for their own misjudgements without running to the government..

Enron
Adelphia
Tyco
Worldcom


- old video, but well put

[Russo]

Originally Posted by a_Username

i know i know

i just get passionate about my childrens future.. esp when people try to lower the scope on reality..

[a_Username]

Originally Posted by Russo

i know i know

i just get passionate about my childrens future.. esp when people try to lower the scope on reality..

It's cool. That topic is just talked about too much on here. They should have a "bash GM" thread stickied with all the hate around here lol.

[Russo]

Originally Posted by a_Username

It's cool. That topic is just talked about too much on here. They should have a "bash GM" thread stickied with all the hate around here lol.

or just make it illegal like God and politics.. hey, at least they let members post pics of their naked wives on a family car forum..