I love IPO registration statements because they have to provide full and fair disclosure of all material facts and forward-looking statements must “bespeak caution.” The following quote from the risk factors section on page 19 of the prospectus included in the Form S-1 Registration Statement that NewGM filed yesterday says everything you need to know about the Volt and the other plug-in vehicles that currently reign as media darlings.
“In some cases, the technologies that we plan to employ, such as hydrogen fuel cells and advanced battery technology, are not yet commercially practical and depend on significant future technological advances by us and by suppliers. For example, we have announced that we intend to produce by November 2010 the Chevrolet Volt, an electric car, which requires battery technology that has not yet proven to be commercially viable. There can be no assurance that these advances will occur in a timely or feasible way, that the funds that we have budgeted for these purposes will be adequate, or that we will be able to establish our right to these technologies. However, our competitors and others are pursuing similar technologies and other competing technologies, in some cases with more money available, and there can be no assurance that they will not acquire similar or superior technologies sooner than we do or on an exclusive basis or at a significant price advantage.”
While I don’t hold myself out as being qualified to analyze GM’s business there were a couple of line items on its balance sheet that concern me. At December 31, 2008, OldGM had $91.0 billion in total assets, including $46.7 billion in non-current assets. At December 31, 2009, NewGM had $136.3 billion in assets, including $77.0 billion in non-current assets. When I went through and did a line by line comparison the major changes boiled down to three line items that were insignificant on OldGM’s balance sheet but massive on NewGM’s balance sheet.
- NewGM reflects $30.7 billion of goodwill where OldGM didn’t have any;
- NewGM reflects $14.5 billion of intangible assets where OldGM only had $0.3 billion; and
- NewGM reflects $22.0 billion of stockholders’ equity where OldGM had an $85.1 billion deficit.
I don’t claim to be an expert in fresh-start accounting or the incredibly complex valuation estimates that generally accepted accounting principles require in a bankruptcy reorganization, but it strikes me as more than passing strange that a bankruptcy could create $45 billion in intangible asset values and stockholders’ equity that didn’t exist before OldGM failed.