Раздел 5. Экономика.

Тема 25. Бухучет.

Text A. You may be liable for that lease.

FASB’s review of lease accounting standards could really hammer retailers

The fallout from Enron Corp.’s financial shenanigans continues, and not just in a courtroom in Houston. The financial Accounting Standards Board (FASB) is launching a review that could overhaul one of the most convoluted areas of off-balance-sheet accounting: leases.

Companies in the Standard & Poor’s 500-stock index have more than $300 billion in leases that don’t show up in the balance sheets, according to estimates by Bear Stearns Cos. and Credit Suisse group. Retailers, ahead of transportation and financial services companies, have the most. The tally rises to $1.25 trillion when all public companies are taken into account, estimates the Securities & Exchange Commission, which last June recommended a rethink of lease accounting.

Putting those leases on corporate balance sheets as liabilities would greatly change how indebted the companies appear. Bear Stearns predicts an aggregate 17% jump in debt levels for all nonfinancial companies in the S&P 500. “It paints such a different picture for many companies. I think that takes some people by surprise”, says Credit Suisse analyst David Zion.

How heartily companies will argue against a change may depend on their existing debt burden. Bed bath & beyond Inc. doesn’t have any bank borrowing, so a rise in debt couldn’t affect them in that regard. Says chief Financial officer Eugene A.Castagna: “Whatever the rules are, we’ll follow.” Many companies declined to comment before a specific rule change is proposed, but drugstore giant CVS Corp. does argue that the Credit Suisse analysts may be too negative. Multiplying eight times a single a single year’s lease expense – a method that some credit analysts already rely on – puts CSV’s liability at $9.9 billion, management says. That’s $1.2 billion less than Zion’s number.

Closing loopholes

Over the past 30 years, hundreds of accounting rules and regulations have been issued on leases, and critics say the result is an industry of experts practiced at how to keep them off the books. Currently, if lease payments add up to 90% of the value of the leased property, the lease must go on the balance sheet. So, says FASB chairman Robert H. Herz, cookie-cutter templates have been created to design leases so that they don’t add up to more than 89%. One argument for leaving leases off the balance sheet is that lessors don’t have ownership rights – they can’t resell the asset, for example. But many accounting experts consider a promise to pay rent an obligation equal to any other liability.

One new model that FASB will explore, says Herz, would treat a lease as a “right to use” the property, which would be given a value and included among the liabilities and assets of the company that is leasing it. Companies argue that information about these leases is not secret, but is readily available in the footnote of their annual reports. However, Bear Stearns analyst Chris Senyek has found that such disclosure is far from consistent, with some companies leaving out vital information such as the length of lease. And the databases that many investors consult to sort through a company’s performance generally don’t include the data from footnotes.

There will be plenty of time to argue all the points. Herz doesn’t expect new rules to be finished before 2008 or 2009 at the earliest.

(From Business week, June, 2006)

Text B. GM: Money to Burn – And It’s Burning

Improved earnings or not, it continues to hemorrhage cash at a fast clip

Finally, some good news for General Motors Corp.’s tortured shareholders. On May 8, GM revised its first-quarter earnings to report a tidy profit of $445 million. That was a nearly $800 million reversal from the loss the carmaker announced three weeks earlier for the same quarter. From Apr.20, when GM reported a $323 million loss, to the days following its release on the newfound profit, the stock shot up to 25%, to over 26 a share, and is holding firm.

But this is the case where the bottom line isn’t the last word. While some analysts suggest buying the stock, credit rating agencies have not budged on giving GM poor marks. Why? GM can’t seem to stop chipping away at its $35 billion cash pile. The company went through $6 billion in operating cash last year and a further $1.2 billion in the first quarter. The costs of long-term health-care and restructuring mean the company could keep burning cash for more than two years. “The accounting results don’t mean much”, says Mark A.Oline, an analyst at Fitch ratings Ltd., which has put GM on a negative credit watch. “We’re focused on the cash.”

So is GM’s management, and with good result. Consider this: last year, GM said it would lay off 30,000 workers and close nine plants by 2008. As Gm steadily lays them off, the company must keep paying most of their wages as part of its labour contract. Through next year, GM estimates it could end up paying $1.7 billion to workers who aren’t working. That’s why it wants them to accept buyout deals this summer. But that, too, eats up cash. “We’re still hemorrhaging”, says GM vice-Chairman and Chief Financial Officer Frederic A. “Fritz” Henderson. “Job One for 2006 is to reduce our cash burn.”

Then there are health-care costs. Last fall, GM chairman and Chief executive G.Richard Wagoner Jr. negotiated a deal with the united Auto Workers that requires GM’s 360,000 union retirees to kick in increased sums for health insurance. GM’s $5 billion annual outlays for health care will drop by $ 1 billion a year. But through next year, that savings goes to a UAW health-care fund.

Keep an eye on GM’s cash-flow statement, too. In the first quarter the company said its operations generated $800 million in cash. But if it hadn’t raised $2 billion from selling most of its stake in Japan’s Suzuki Motor Corp., GM would have blown $1.2 billion in the quarter. The company also tapped $2 billion from a special $15 billion fund earmarked for health-care costs. There’s nothing wrong with including the trust in the company’s $35 billion war chest. But it can make operating cash flow look better even as the company drains assets. Prudential Securities Inc. analyst Michael Brunesteyn estimates Gm will burn $2.8 billion in cash while inking a profit of $249 million this year, and will run through $3.4 billion more cash in 2007 while turning a projected profit of $1.8 billion.

New Labour Pact

That’s why talks between GM and the UAW have everyone’s attention. Wagoner will probably spend several billion more to help bail out bankrupt parts maker Delphi Corp. and avoid a strike that would shut down GM. Next year, it will negotiate a new labour pact with the UAW, asking for deeper concessions on health care and a watering down, if not a nullification, of the UAW’s paid layoff benefit. But that, too, is problematic. When Wagoner bargained for a deal on health care cuts last fall, he agreed not to touch union retiree benefits until 20011. So GM can only ask active workers for more cuts. Says Wagoner: “We aren’t done on health care.”

With all of the company’s cash problems, why would anyone be bullish? Wagoner’s restructuring should trim $7 billion in cots and improve cash flow by $4billion, says KeyBanc Capital Markets analyst Brett D. Hoselton. The auto maker also has a wave of new models due this year and next, and it will get $14 billion by the end of 2008 from the sale of half of General Motors Acceptance Corp. Still, GM’s market share continues to fall, and it’s not clear that it can sustain revenue growth. Wagoner, ever cautious, concedes that “we have a long road ahead.”

(From Business week June 2006)