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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (500)	7/10/1998 9:33:00 PM
From: porcupine --''''>	Read Replies (2) \| Respond to of 1722

Wayne: I don't question your reading of the balance sheet. But, Value Line has been saying for some time that GM's pension liabilities are now fully funded. Although I don't have a copy handy (perhaps Axel does), I believe S&P Reports says the same thing. In the Barron's cover story on GM (6/22/98, p. 31) it says, in part: "Five years ago, GM's pension funds were underfunded to the tune of $12 billion....Today, the fund deficit has been eliminated..." This is the unanimous view of every report I have read that touches on the subject. If I understand what you are saying, it is that current pension and medical cash expenses were deducted (based upon estimates) from net income in periods past, and therefore are not showing up in calculations of current free cash flow. Instead, current estimates of future expenses are the figures being added back into net income to arrive at current free cash flow. But, because current cash expenses for medical benefits and pensions are based upon the much larger labor force GM once had, there is much more cash going out the door than is indicated by adding back in the current accruals, which are based on the smaller labor force of the future. However, as you know, the FASB (not to mention the IRS) require companies to reconcile past estimates with the current reality. I believe the net of all of these adjustments are reflected in the Value Line footnotes in the box on so-called "nonrecurring gains (losses)". Nevertheless, you have raised an important point, not only on the free cash flow issue, but also on the productivity issue. Not only does GM require substantially more current employees than Ford to build a vehicle, it also has a vast army of retirees and their families that are part of the cost of building every vehicle.