In an unexpected move today GM CEO Rick Wagoner announced that the company is exiting the North American market.  "We are profitable the world over and expanding market share except in our home country.  We are embracing globalization, not running away from it.  We see value for shareholders by seeking a Chrysler style sale on our North American assets and spinning that company off from GM. Stockhlders will then have our strong brands in North America as well as a globally positioned firm that is expanding in the hottest markets of India and China."

Wall Street, not to mention Detroit,  was rocked with this news.  Already hedge funds are said to be eyeing cash brands like Chevy, others are considering auction prices for the rest of GMAC.  GM shares jumped 15% in pre market trading as analysts saw increased shareholder value in the two new firms.  "Stripping off GM NA will finally send a message to the remaining 74,000 UAW workers that this is Alamo time for them," noted an auto analyst familiar with the story. Goldman Sachs is rumord to be in talks with Ford over a similar proposition. "Handing the keys to GM  headquarters in Detroit to the UAW is not out of the question," quipped one analyst.

Okay just kidding, but was I?  GM announced its continuned lack of earnings report today. Read the story, really.  How could one discern this minefield of accounting information without studying accounting ?  While everyone assumes things change gradually they do not.  Witness the sale of Chrysler, and Mercedes paying the buyers to take it.  Gradualism will not likely change the fortunes of Ford and GM.  As the market cap of GM and Ford have fallen below companies like say JCP or WAG, one has to wonder if this is not a realistic possibility.   A new buyer could take the firm into Chapter 7 bankruptcy, and get new contracts much more to their liking.

All Classes

I will spare you my frustration with WEB CT and its design from my standpoint and simply tell you that
I have configured each class so that you can

post your papers under the discussion tab so your classmates can comment on it via a threaded web
post your same paper under assignments so I can grade them and comment

I realize that some of assignment and discussion has been hidden and trust me one would never figure out how to unhide it without help but I got that done.  Please proceed accordingly.

ACCT 5130

I have begun posting Prof Points imper Course Content to attempt to help you with the chapters and homework.  I will be posting  help ideas on homework for Chapter 3  as well as instructions on what to do with it!

We will have Jeremy Clark Chief Operating Officer of Lancaster Medical Hospital speak to us this next class meeting Sat Feb 16. Please read two posts back for more information.

I am available to you most of the time, I am open to suggestions about availability  on the web.

Yahoo rejected MSFT’s initial offer.   Now YHOO needs a higher offer from MSFT or some white knight to offer even more.  A White Knight would be a buyer who would offer more and not destroy all the exisitng jobs for everyone at YHOO something sure to happen if MSFT wins the bid.  The Board is under pressure as MSFT offered a much higher price than YHOO was bringing in the market pre offer. This is pretty typical in take over situations.  Will MSFT offer more, will a White Knight emerge, stay tuned…..

Got that?  It seems Price Waterhouse Coopers the outside auditor for insurance giant AIG, has questions about the Internal Control systems. It is dificult to value, are you ready, the super senior credit default swap portfolio.  Gee it is hard enuogh to write it or say it much less value it!  We will be studying derivatives in a few days in intermediate accounting.  Once again uncertainties about the credit side of the balance sheet has uncertainty spreading throughout the investment community.  See my previous post about CLOs. AIG is down 11% on that news this morning. This follows a continued series of bad news events for AIG since Hank Greenburg got the boot. 

SARBOX Sarbanes Oxley requires the outside auditor to comment on the effectiveness of IC Internal Controls. IC should allow amounts to be reported correctly. When one cannot value assets clearly we have an IC problem.  Markets never like uncertainty, they run from it, they sell into it, and that is what we have here.

And so sub prime brings mortgage woes which have spread to loan woes which spreads to uncertain cash flows from investing in CMOs and CLOs which leads to IC uncertainty and credit downgrades which makes it tougher to borrow which raises junk debt rates and lowers AAA interest rates as investors pile into high quality bonds and out of uncertain investments. Get all that?  You will if you have been reading the blog and the links we highlight!

Jeremy Clark is the new Manager of Lancaster Memorial Hospital. Jeremy is new to the Dallas area having spent his life in the SE United States. He listed five new initiatives at the Hospital including
New obstetrics unit-50 babies delivered in June
Emergency Room Waiting Time Lowered
Occupational Medical Program
A new Physical Therapist Hired – and convenient location
New radiology equipment has been ordered

Jeremy demonstrated a clear grasp of Managerial Accounting and Total Quality Management. He mentioned the term metrics several times. A metric is a benchmark measure of how well an organization is performing such as emergency room wait time. His five measures of hospital success include
Existence of A Quality Program
Service Levels
People
Cost Control
Growth of the Organization

Jeremy Clark will speak to ACCT 5130 February 16, 2008 at 11:30 AM. This will be most ineresting. The reason is not only his practical application of TQM but since he visited with our Rotary club some months ago, he has abandoned the Obstetrics Program. His use of metrics led him to the conclusion that the Obstetrics program was achieving the desired objectives.

The web site is http://www.mclancaster.com/.

Mike Curran is the CEO, Jeremy Clark is the COO.

Exxon’s 2007 Tax Bill: $30 Billion
Mark J. Perry, PhD | February 05, 2008

Corporate profits receive a lot of media attention, but what receives considerably less attention are the corporate taxes paid on corporate profits. Do a Google search for “Exxon profits” and you’ll get about 8,000 hits. Now try “Exxon taxes” and you’ll get a little more than 300 hits. That’s a ratio of about 33 to 1.

I’m pretty sure that Exxon’s tax payment in 2007 of $30 billion (that’s $30,000,000,000) is a record, exceeding the $28 billion it paid last year.

By the way, Exxon pays taxes at a rate of 41% on its taxable income!

[Update: The $40.6 billion and $39.5 billion figures are after-tax profits. For 2006, Exxon’s EBT (earnings before tax) was $67.4 billion, it paid $27.9 billion in taxes (41.4% tax rate), and its NIAT (net income after tax), or profit, was $39.5 billion.]

Over the last three years, Exxon Mobil has paid an average of $27 billion annually in taxes. That’s $27,000,000,000 per year, a number so large it’s hard to comprehend. Here’s one way to put Exxon’s taxes into perspective.

According to IRS data for 2004, the most recent year available:

· Total number of tax returns: 130 million

· Number of Tax Returns for the Bottom 50%: 65 million

· Adjusted Gross Income for the Bottom 50%: $922 billion

· Total Income Tax Paid by the Bottom 50%: $27.4 billion

Conclusion: In other words, just one corporation (Exxon Mobil) pays as much in taxes ($27 billion) annually as the entire bottom 50% of individual taxpayers, which is 65,000,000 people! Further, the tax rate for the bottom 50% is only 3% of adjusted gross income ($27.4 billion / $922 billion), and the tax rate for Exxon was 41% in 2006 ($67.4 billion in taxable income, $27.9 billion in taxes).

Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. ###

Dennis Elam Observation

Okay so what did the US Govt do with $27 B x 3 = $81 B?

Are we more energy independent? Did someone create a nandy solar adjunct water heater so we could all save money on heating bills? Have they worked with car companies or tried to engage an urban planing strategy to allow for more rail or high mileage ultralights (my Kawasaki Mule for the street idea) in suburban neighborhoods? No, none of that! We are no closer to energy independence than we ever were!
Now suppose Exxon had been able to keep even half that money to work on energy research,
who do you think would show more results at the end of the day, Washington or Exxon?

I await your comments on the blog….

I don’t know how long this will be up so click fast and read about CLOs.   These are Collateralized Loan Obligations ,the corporate equivalent of CMOs Collateralized Mortgage Obligations. The article details that individual investors have withdrawn over $4 B in the last few weeks from such mutual funds. And that debt is trading lower in value.  So the market for CLOs and ability to finance them, pools of loan to you guessed it, somewhat sub prime companies is shrinking.

We study the credit side of the balance sheet in Intermed II. The credit side lists loans for what is owed. Note we do not list the amount those loans carry in the after market.  This affects the ablity of those companies to re finance those loans. Let’s face it, most long term debt is not paid or removed from balance sheets, it is replaced with new debt. If refinancing channels are not available, then interest rates must go up for that capital, assuming a willing borrower can be found.  This lack of liquidity is forcing interest rates higher outside the highest rated debt.  Those costs must be passed on to someone. We noted just a couple of posts back that consumer confidence is the lowest since 2002. That is reflected in the inability to re finance loans.

Confidence recedes in a recession.

The primaries will eventually move from touchy feely to what are you actually proposing here, at least I hope so. In the mean time here is something to contemplate as business students.

Wednesday, February 06, 2008

Taxes that Must be Stopped

Posted by: John Campbell, CPA, Member of Congress

In light of the debate over the economic stimulus package, many people have forgotten about the impending danger of major tax increases. Below are some of the tax increases you will get if Congress does nothing. These increases will be automatic unless Congress does something to stop them.

This is yet another reason why I opposed the stimulus package. Making the current tax rates permanent is more important than any one time wealth redistribution that is disguised as a rebate.

2008:

The exemption for the Alternative Minimum Tax (AMT) will decrease from $44,350 to $33,750 for single filers and from $66,250 to $45,000 for married couples filing jointly.
Taxpayers will not be allowed to deduct their state and local general sales taxes from their federal income tax.
Taxpayers will not be able to adjust their income for qualified tuition and related expenses.
Businesses will not be able to claim a tax credit for research, experimentation, and development activities.
First-time homebuyers in the nation’s capital will no longer be able to claim a tax credit.
2009:

Taxpayers will no longer be able to claim a tax credit for certain residential energy efficient property, a tax credit for the construction of new energy efficient homes, or a tax deduction for energy efficient commercial building property.
2010:

The Section 179 business expensing cap will decrease from $128,000 (plus inflation after 2008) to $25,000, and the starting point for the phase-out of this deduction will decrease from $510,000 (plus inflation after 2008) to $100,000.
2011:

The marginal income tax rates will increase as follows:
–35% bracket will increase to 39.6%

–33% bracket will increase to 36%

–28% bracket will increase to 31%

–25% bracket will increase to 28%

–10% and 15% brackets will condense to 15%

The capital gains rates for individuals will increase from 15% and 0% to 20% and 10%.
Dividends will no longer be taxed at the capital gains rates for individuals, thereby increasing the double taxation of dividends by as much as 62%.
The standard deduction for couples as a percentage of the standard deduction for singles will decrease from 200% to 167%–restoring the marriage penalty.
The top end of the 15% marginal income tax bracket for couples as a percentage of the top end for singles will decrease from 200% to 167%–restoring the marriage penalty.
The child tax credit will decrease from $1,000 to $500.
The “death” tax using the “stepped up” basis will return with a 55% maximum rate (including surtax) and a $1 million exemption, after years of decreasing “death” tax rates, increasing exemptions, and one year using the “carryover” basis to calculate the tax due.

Consumer confidence is  at its lowest level since 2002.  The market was just starting to recover from 9/11 that year. It is no coincidence that year started a bull run that lasted till 2007.  The economy is a mirror of confidence. Confident business owers invest, lacking confidence, they pull in their horns and turtle like retreat into their shell. Fewere people are hired and with less money to spend, bingo it does not take long for the economy to slow down.

Recommendation, one cup of cheer at everyone’s breakfast table in the morning.

Tuesday the Dow dropped 300 points letting George and Nancy know what the market thought of their package.