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

To: porcupine --''''> who wrote (503)	7/10/1998 10:13:00 PM
From: Freedom Fighter	Respond to of 1722

Reynolds I have an update on the Pension/Retirement Issue. In the footnotes of the last annual report, the unfunded portion of pension liabilities is approximately 5 billion. It rose slightly in 1997. (I know, it's hard to believe in this environment). On the health care issue this is what I have found out. The liability is approximately 41 billion. In my mind the charges against earnings in VL or that FASB required for the past (in the early 90's) were basically a non-event except to expose the liabilities companies had. It was a non-cash event. The earnings reported since then reflect the true earnings of the company because the present value of the future promises are being expensed. My question and concern has been how to handle the 41 billion that is unfunded because it will eventually come from cash flow. Based on your analysis and my own early research I was starting to get real interested in GM even though it's outside my limited area of comfort! The only valuation book I have that touches on the issue (Mckinsey & Company - "Valuation") says that you should subtract both unfunded pensions and unfunded post retirement benefits from the valuation of the company based on all other info. These liabilities per share are just under $70. That means that in order to pay $70 per share for GM, you must calculate its fair value using reported EPS, free cash etc.. at $140. That is close to 20x earnings. I checked their spread sheet and this is how they do it. If my understanding of the book and spread sheet is correct, I believe a very careful examination of all such companies is in order.

To: porcupine --''''> who wrote (503)	7/15/1998 5:55:00 PM
From: DRM	Read Replies (1) \| Respond to of 1722

A few comments about GM.... European car operations trending down in profit due to overcapacity in Europe and rough compentition. NAO operations much better than 5 years ago but still has large cost penalty compared to Chrysler,Ford,Toyota Delphi operation earnings are being torpedoed because of the strike ... note that the second half of the year has the fewest working days (summer shutdown,dearseason,Thanksgiving,Christmas)and if you didn't get your earnings the first half .... you won't make-em up. GM would LOVE to spin-off 20% of Delphi this year ... but the strike has scuddled that (plus some earnings problems at Delphi ... the numbers just aren't there yet) GMH .... looking good .... owns 70% of SPOT ... doing great GMAC .... doing good (not great) Latin America .... Sales were torpedoed in first half because of huge jump in Brazil (and most of Latin America) in the overnight lending rate.. Recovery not yet in site Far East ... Small GM sales but they were triple whammied with currency devaluations.... Meanwhile GM continues investing heavily in more than a half dozen locations Pension Fund .... fully funded (GM has stopped contributing) due largely to the huge market run-up... Demographics very ugly... In many plants 30%-40% of the workers are eligible to retire in the next 5 years..... New plant startups in North America (Nissan,Toyota etc) have much younger workers ... thus higher productivity, much lower health cost, lower pay scales, and NO pension liabilities fo the next 10 to 20 years. Stock-buy backs ... temporarily suspended during strike ... but will start up again if strike resolved before cash becomes serious issue. Styling .... You be the judge I'm a buyer of GM stock BIG TIME if the stock hits 66 (and I'll nibble at 67 or 68) .... and a seller at 75 ... (I trade this thing in and out of my pension fund) --- a 20 something year employee of GM ----